On today’s episode: the state of American politics and the future of America’s economy. Derek discusses a media myth in the aftermath of the failed Trump assassination attempt and reviews three basic truths about Joe Biden’s doomed presidential bid. Then, Chicago Fed president Austan Goolsbee joins the show to answer Derek’s blunt question, “Are you going to cut rates next month?” Plus, they discuss the Federal Reserve, how it works, how he sees the economy, whether high rates are constraining housing production, and whether Trump’s signature economic policy idea—high tariffs in an age of global inflation—would help the U.S. economy. (TLDR: No.)
If you have questions, observations, or ideas for future episodes, email us at [email protected].
In the following excerpt, Derek talks to Austan Goolsbee about working at the Federal Reserve Bank and what its essential functions are.
Derek Thompson: The last time you were on the show, you were merely a chaired professor of economics at the University of Chicago Booth School of Business. Today I’m speaking to the president and chief executive officer of the Federal Reserve Bank of Chicago. We talk about the Fed a lot on this show; there’s enormous amount of interest in the Fed. There’s a mystique about the Fed. I do think this is the first time I’ve spoken to someone who actually serves on the Federal Open Market Committee, the FOMC, these Wizards of Oz of American monetary policy.
Before we talk about inflation and the labor market and the future of the U.S. economy, I have a very personal question. What is your job? Like, on an hour to hour basis.
Austan Goolsbee: What do you do all day?
Thompson: What do you do all day?
Goolsbee: I thought you were going to say you were a tenured professor at the University of Chicago, and now you’re at the Fed. Was that a promotion or a demotion? The Fed system, as you know, is a little, it’s not creaky, it’s a little byzantine. It was set up in 1913 with the Federal Reserve Act. And back then, as today, people fundamentally did not trust centralized authority, and they did not want Washington, D.C., and the New York City financial community to have a monopoly on the financial system and the monetary policy of the United States. So they set up 12 reserve banks, spread around the country, to be part of the FOMC and to bring independent perspectives about the economy. The Chicago Fed district is basically heart of the Midwest, 90 percent of the population of Iowa, Wisconsin, Michigan, Indiana, and Illinois. And so one part of the job is preparing and going to these meetings where they decide on monetary policy.
But the other thing that the reserve banks do, (a), we’re basically a bank to our member banks. So we provide, they have a bank account with us. We have a vault with $25 billion of cash here. We are the regulator and supervisor of member banks. And so we have a lot of regulators there. And each of the banks is meant to be a kind of pillar of the community. So we have a community development function. We’re out engaging with civic leaders. We go around, I’ll go tour factories and farms, and I’ll go out and speak in the community and I’ll try to gather intelligence.
So it’s a lot of meetings, but it’s also a lot of fun. I mean, the Fed may be a mystery to many, but once you are a member of the Federal Reserve system, you recognize that in this small part of the universe, it really matters a lot.
Thompson: It’s interesting to think that you’re both an evaluator of the economy and also a kind of senator, like a representative of the districts, right? You’re sort of a monetary senator.
Goolsbee: In a way I guess that’s right. Yeah. In a weird way, it’s like the governors, the Fed governors are political appointees confirmed by the Senate. They work in Washington, D.C., and in a way, they are like senators and the presidents are kind of like governors. We’re out and we have a district and we have a bunch of operational responsibilities, and we’re out doing these events.
Thompson: And just one more question about the job itself. These FOMC meetings are lore among the economic and financial nerd community. These are the meetings where the stewards of American monetary policy get together and discuss the future of the economy and how to shape it with the tools at your disposal. What is it like being at an FOMC meeting?
Goolsbee: If you’re an econ nerd like me, the FOMC meeting is just about the coolest thing in the world. It’s just as amazing as you dreamed it would be. You go in, there’s a giant table, down come the shades, so nobody can spy on what’s being said. And then they go around the table, and every president and governor and Jay Powell himself give their opinion about the economy. And we have a debate about conditions and what to do in monetary policy. And I’ve been saying, no offense to anybody else in the 21st century, my view is the FOMC is the world’s greatest deliberative body. And I thought that going in, and nothing has changed about that as I’ve been there.
Thompson: We are eventually going to talk about the U.S. economy, but I have one follow-up question about the FOMC, because I’m imagining, you’re a smart guy, you’re sitting in a room with a bunch of brilliant people thinking about the economy, but fundamentally, you are having a discussion. You are having a kind of debate.
Do certain people who are just naturally good at talking have an advantage at that table in terms of shaping the future of American economic policy? You are, if I recall from my 2008, 2009 reporting on the Obama White House, aren’t you like a high school or college debate champion? Does this make you unusually and unfairly advantaged to shape the future of U.S. politics?
Goolsbee: I like your positive spin, and it’s kind of like the Derek version. I thought you were going to go the totally opposite way. If you’re a person who talks too much, do they ignore you? Yes, probably. But this is the deliberation I would characterize in a way partly takes place across meetings. So each person speaks their piece, and then you have your research director or somebody there, and everyone’s research director is furiously writing down what everyone else said. And then we will kind of come back and process over the—the meeting is approximately every six weeks—and we’ll spend some of the weeks trying to update with new data. But also, what did the other people say? So a bunch of the deliberation is not a debate in the moment. It’s more of a longer, longer think.
This excerpt was edited for clarity. Listen to the rest of the episode here and follow the Plain English feed on Spotify.
Host: Derek Thompson
Guest: Austan Goolsbee
Producer: Devon Baroldi
Subscribe: Spotify
