Global Courant 2023-04-14 19:54:52
Austan Goolsbee
Kathy Rooney | CNBC
The latest set of economic data shows positive trends in inflation, but the Federal Reserve’s job is not over, said Austan Goolsbee, president of the Chicago Federal Reserve.
Goolsbee, who succeeded Charles Evans as president earlier this year, is a member of the Federal Open Market Committeewhich determines the rate of federal funds.
“When you see producer prices coming in as big negatives and you see these negatives on retail sales, you don’t want to overreact to short-term news, but it feels like that’s moving in the right direction,” he said on CNBC’s “Squawk Box” Friday on Steve Liesman.
Advanced retail sales data released Friday morning showed that consumer spending slowed in March on concerns about the banking crisis and a possible recession. The data showed a 1% drop in March, which is a bigger drop than the 0.5% expected by economists polled by Dow Jones. March marked the biggest monthly decline since November.
Excluding cars, retail sales fell 0.8% in the month. That’s also a bigger drop than analysts had expected of 0.4%.
On Thursday, the March producer price index, a measure of prices paid by businesses, fell 0.5% from the previous month, despite economists expecting prices to remain flat. Excluding food and energy, the index lost 0.1% month-over-month, while economists estimate a 0.2% month-over-month increase.
Investors saw that data as building on Wednesday’s March consumer price index report. The CPI showed consumer prices were 5% higher than the same month a year ago, the smallest year-on-year increase in nearly two years.
Still, he noted that there is “obviously tacky” in some price areas. And with the current economic conditions, Goolsbee said the US could face a recession.
“There’s no way you can look at the current conditions in the world and in the US and not think that a mild recession is definitely on the table,” Goolsbee said.
This week’s data has bolstered the hopes of those who predict that the Fed could change course in its rate hike campaign. The central bank has raised interest rates in an effort to cool inflationary pressures, but Goolsbee warned against tracking “lagging” indicators such as wages.
“The one thing I think we spend too much time on is wage growth as an indicator of prices,” Goolsbee said. “There has been research by two Chicago Fed researchers that reflects a longer research tradition showing that wages do not serve as a leading indicator of price inflation. They are a lagging indicator.”
“So when people look at what’s happening with wages now, it’s more reflective of what happened with prices six months ago,” he added. “I think we want to watch the price range, not the wage range.”
Goolsbee said the stress in the financial sector after the industry crisis following the closure of Silicon Valley Bank last month could help do the job that monetary policy usually does. The potential for a credit crunch should also be watched, he said.
