A MARTÍNEZ, HOST:
A Labor Department report this week shows inflation easing a bit more than expected. Prices in June were up about 3% overall, a smaller annual increase than the previous month. What's called core inflation, which excludes volatile food and energy prices, is at its lowest point in three years. Now, that could free up the Federal Reserve to lower interest rates, which would likely boost borrowing and spending.
Austan Goolsbee is president of the Chicago Fed and a former White House economist in the Obama administration. He's here to put these numbers and trends into context. Austan, so what stood out to you in the new data from the Labor Department?
AUSTAN GOOLSBEE: Well, it was a excellent report. And I always say, one month is no months. So you don't want to jump up and down over any one month, but we had a excellent report last month, too. We hit a bump at the beginning of this year, with some less pleasant reports. But the last half of last year looked about as good as this. So if you kind of take a longer arc rather than just - what does one month say? - it seems pretty favorable. You're seeing the inflation rate, the growth rate of prices, at least, coming back down to something like what the target is.
MARTÍNEZ: All right. So what's your sense of why inflation has been cooling a bit?
GOOLSBEE: Partly the things that went wrong on the way that inflation was going up, that the supply chain was breaking down, that we were overloading the demand for what the system could handle - that there was this weird transition of people normally spending most of their money on services, but they couldn't get the services because things were shut down, so they just started buying a lot of physical goods and that overloaded things. All of that stuff healing and moving back to normal, that's clearly a major component.
And then some component - the Fed itself raising interest rates pretty significantly in a relatively short period of time to try to cool things down. I think that's also been a component.
MARTÍNEZ: What do you think this will mean for how the Federal Reserve handles interest rates? That's the big question that everyone want answered. Does this make, maybe, a rate cut more likely?
GOOLSBEE: As you know, the rules of the Federal Open Market Committee say that nobody should speak for anybody else on the committee. They should only speak for themselves.
That said, the FOMC puts out a statement, and in the statement, the committee has said that before they could start cutting rates, they wanted to have more confidence that we were on path back to the 2% inflation target. It says that. And the more data you get like what we got this week and what we got last month, and the more data you get that looked like the last half of last year, the more confident you would be that you're on the path back to the 2% goal.
MARTÍNEZ: Now, Austan, we've heard from a lot of listeners that the positive signs on inflation are not necessarily showing up in their day-to-day lives and that essentials, such as food and rent, still seem pretty painfully expensive. Do you have a sense that that is changing at all?
GOOLSBEE: Yes and no. And, I mean, you could have made it even worse for us or made us more unpopular, in that the Fed looks not at overall inflation but primarily at core inflation, which does not include energy and food prices. And then my mom is like, what do you mean you don't think about energy and food prices? That's exactly what I think about. But the reason that we look at that core inflation is energy and food prices go way up. They go way down. There's, like, a lot of variability to them.
So if you look at core inflation - remember, this is the growth rate of prices. When I talk to people, the frustration that they often express is about the level of the prices. And they're like, I go to the grocery store. It is expensive. That's not really going to change. Though it's a little frustrating, that's not the goal of the Feds, which has a dual mandate by law in the Federal Reserve Act, is to maximize employment and stabilize the prices, which we've interpreted in a narrow sense to be get the inflation rate down to 2%. That's the goal of what they're trying to do, as opposed to trying to roll back the prices to get us to the price level that we were five years ago or something like that.
MARTÍNEZ: So, Austan, we got some questions from listeners about inflation. Peter Lautenslager (ph) asked, beyond keeping interest rates high, what other measures are there to reduce inflation?
GOOLSBEE: The main determinants of inflation are how the economy's doing and what's happening on the supply side. So you can monitor those, but they're not really policy levers in the way that the Fed kind of just has the interest rate that we can tighten or we can loosen. But we can't make you breakfast. You know, we have a very limited tool set.
MARTÍNEZ: That's Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago. Austan, thanks.
GOOLSBEE: Thank you. Transcript provided by NPR, Copyright NPR.
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