Author：Currency Explorer
Cleveland Fed President Beth Hammack and Chicago Fed President Austan Goolsbee both believe thatInflation is a far more serious problem than employment. This underscores their support for tightening rather than loosening monetary policy.The current war in Iran is putting upward pressure on energy prices, while the job market remains sluggish.
In a joint interview on NPR’s “The Indicator from Planet Money” podcast, the two were asked to use a four-color scheme to assess their economic situation, ranging from red, which represents “the house is on fire,” to green, which represents “everything is fine.”
“It’s at least orange. Orange carries the connotation of ‘meatball rain’—things haven’t been good,” Goolsby said, referring to the inflation outlook amid rising gasoline prices. “I was optimistic that we would get back on track to 2% inflation, but alas, it’s recently turned from orange to red—we’ve had tariffs pushing up prices, which should have subsided but didn’t, and now we’ve added another stagflation shock on top of that… It’s a disturbing time.”
Hamak is also concerned about inflation, noting that it has been above target for five consecutive years and has been "basically trading sideways" for the past two years. "It's definitely that brighter, more vibrant orange: I don't know if it's burnt orange or burnt ochre—my Crayola crayon box is getting a bit old."
This interview was recorded last Wednesday, two days after the U.S. Department of Labor released its March non-farm payroll report, showing that the number of jobs added that month was the largest single-month increase since Trump began his second term last January. The unemployment rate fell to 4.3%, mainly due to a large number of workers leaving the labor force.
“For me, the best indicator is actually the unemployment rate,” Hamak said, noting that the current rate is close to her estimate of full employment. While this is a “fragile balance,” she rates the economic outlook as yellow to green—perhaps yellowish-green, she said, “or actually ‘Diet Mountain Dew’—a color favored by one of her Fed colleagues at the interest rate decision-making table.”
Meanwhile, Hamak stated that despite the stock market decline since the start of the Iran-Iraq War, the financial system is "generally green," andFrom a financial stability perspective, the economy is in good shape..
Goolsby was more cautious on both fronts, rating the labor market "yellow" because of its "low hiring, low firing" state—which, in his view, could be largely explained by persistent uncertainty.
Regarding the financial system, he said he was satisfied with the payment system but "a little more anxious" about asset prices. "It does look like there are a lot of bubbles," he said, adding that it's unclear whether these are productivity-driven or just a bubble waiting to burst.
“Maybe that counts as yellow? You’ll never hear me say the word ‘yellow-green’,” he said.
The White House says increased productivity means the Federal Reserve can cut interest rates.
White House economic advisor Kevin Hassett told CNBC on Monday that he believes the U.S. economy’s “supply shock” caused by higher productivity from capital spending and artificial intelligence will enable the Federal Reserve to lower interest rates.
“If we continue to experience supply shocks because of all this capital spending… artificial intelligence increases productivity, which will put downward pressure on inflation, and that should ease the pressure on the Fed. They should be able to lower interest rates,” Hassett said.
Hassett said he expects interest rates to be lowered if Kevin Warsh, Trump’s nominee for Federal Reserve chairman, takes office.
