Cleveland Fed President Loretta Mester and Chicago Fed President Austan Goolsbee have both indicated that inflation poses a more significant challenge than employment issues. This underscores their inclination toward supporting tighter monetary policy rather than easing, particularly as conflict in the Middle East drives up energy prices while the job market continues to operate at a subdued pace.
In a recent interview, both officials were asked to assess the economic situation using a four-color scale ranging from red, indicating a "house on fire," to green, signaling "everything is fine." Regarding the inflation outlook amid rising gasoline prices, Goolsbee remarked, "It's at least orange, and conditions haven't been favorable recently." He added, "I was initially optimistic that we would return to a path where inflation falls to 2%, but lately it has shifted from 'orange' toward 'red'—tariffs have pushed prices higher, factors that were supposed to ease have not, and now we face additional stagflationary pressures. This is a concerning period."
Mester similarly expressed unease about inflation, noting that it has remained above the target level for five consecutive years and has "largely moved sideways" over the past two years. She stated, "It's definitely in a brighter, more vivid 'orange' range."
The interview took place two days before the U.S. Labor Department released the March employment report, which showed the largest monthly increase in nonfarm payrolls since former President Donald Trump began his second term in January of last year. The unemployment rate fell to 4.3%, largely due to a significant number of people leaving the workforce.
Mester highlighted that the unemployment rate is her primary indicator, and it currently hovers near what she considers full employment levels. Although she described the situation as "somewhat fragile," she rated the employment outlook between yellow and green—joking that it might be closer to "chartreuse, or perhaps more like the color of Diet Mountain Dew, a favorite of one of my FOMC colleagues during policy meetings."
Meanwhile, despite stock market declines following the outbreak of Middle East conflict, the overall financial system remains "largely green" from a stability perspective, according to Mester.
In contrast, Goolsbee adopted a more cautious stance on both fronts. He rated the labor market as "yellow," citing low hiring and low firing rates, which he attributes largely to ongoing uncertainty. Regarding the financial system, he expressed satisfaction with payment systems but voiced greater concern about asset prices, noting, "There do appear to be quite a few signs of froth," though it remains unclear whether this is driven by productivity gains or represents a bubble poised to burst.
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