Chicago Fed president says ‘six-pack’ economy hiding under layer of uncertainty

MACKINAC ISLAND – The president of the Federal Reserve Bank of Chicago says that while the United States may be heading towards stagflation, there is still a strong economy hidden underneath a layer of uncertainty.

Austan Goolsbee, speaking at last week’s Mackinac Policy Conference, pointed to low unemployment rates and inflation hitting targets to suggest that rates should be “well below where they are today” within the next few years.

But he said that’s at risk due to the uncertainty caused by constantly shifting federal economic policies, like President Donald Trump’s will-he-won’t-he approach to tariffs – which he said Michigan is the most exposed state to in the country.

“If we can get the dust out of the air, I do still think that underneath there is a strong dual mandate economy,” Goolsbee said, referring to the Fed’s responsibilities to stabilize prices and maximize employment. “The longer we go contemplating really big changes, like some of the ones that have been discussed, the more that fades into the background.”

Goolsbee compared it to when he started going to the gym and asked his trainer how long it would take for him to develop a six-pack.

“Everyone has a six-pack underneath. The problem is not the lifting of weights; it’s you’ve got to get all of what’s on top of there off before you can see it,” Goolsbee said. “And I feel a bit like that on the economy, you know, if we can just get this off of there, there’s a six pack.”

While Goolsbee said that the economy is currently heading in the direction of stagflation – with inflation rising at the same time employment is deteriorating – he said it will likely not be anywhere near as dramatic as the stagflation of the 1970s, when inflation was at 13% with an 8% unemployment rate.

But he said any decision the Fed has to make can have a large impact on people’s lives.

“What the Fed decides affects regular people. It is not just a game to be played out in the stock market,” Goolsbee said. “It affects construction, it affects purchasing cars, it affects whether you can buy a house.”

Ultimately, he said that while it would be easier to make those decisions with more stability, he said the Fed will adapt to whatever conditions they are presented with.

“I always say that our model at the Fed is the same as the Midwest, that there’s no bad weather, only bad clothing,” Goolsbee said. “You tell me what the conditions are, and I’ll tell you what jackets you’re supposed to wear.”