Cleveland Fed President Hammark and Chicago Fed President Goolsbee both expressed the view that the inflation problem is far more severe than employment issues. This highlights their support for tightening rather than loosening monetary policy, as conflict involving Iran drives up energy prices while the job market remains sluggish.
During a joint interview on the podcast "Indicator" from "Planet Money," the two officials were asked to assess the economic situation using a four-color rating system, ranging from red for "critical condition" to green for "all is well."
When discussing the inflation outlook against the backdrop of rising oil prices, Goolsbee stated: "It's at least an orange alert. It's that 'meatballs falling from the sky' kind of orange; things haven't been great. I was optimistic that we could get back on track toward the 2% inflation target, but my goodness, recently inflation has been worsening from orange toward red. Previous tariffs pushed prices higher and were supposed to gradually fade, but they haven't, and now we have stagflationary pressures added on top. The current situation is concerning."
Hammark also expressed concern about inflation, pointing out that it has been above the target level for five consecutive years and has been "mostly moving sideways" over the past two years. "Inflation is definitely a brighter, more intense orange. I'm not sure if it's burnt orange or ochre—my crayon box is a bit old," she remarked.
The interview was recorded last Wednesday. Two days later, the U.S. Labor Department's March employment report showed the largest monthly increase in nonfarm payrolls since the start of the second term of former President Trump in January. The unemployment rate fell to 4.3%, primarily due to a large number of workers leaving the labor force.
"For me, the unemployment rate is the most critical indicator," Hammark said. The current unemployment rate is near her estimated level of full employment. She described the job market outlook as yellow to green—perhaps a light yellow-green, "or maybe like the color of that 'Diet Mountain Dew' beverage a colleague on the Fed's policymaking committee favors."
Hammark also noted that, despite stock market declines since the outbreak of conflict involving Iran, the financial system is "overall green" and the U.S. economy is in good shape from a financial stability perspective.
Goolsbee was more cautious on both fronts. He rated the job market as "yellow," citing its state of low hiring and low layoffs, which he views as stemming mainly from persistent uncertainty.
Regarding the financial system, he expressed satisfaction with payment systems but voiced greater concern about asset prices. "The market looks like it has a lot of froth," he said, adding that it's unclear whether this is driven by productivity gains or represents a bubble about to burst.
"Maybe that should be rated yellow? You'll never hear me say 'light yellow-green'," he commented.
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