Is the economy red, orange, yellow or green?

0:01Austan Goolsbee:NPR.

0:11The U.S. economy is a little paradoxical at the moment. Unemployment is relatively low, and yet people are saying it's a terrible time to find a job. The share market slumped in the first month of the war in Iran, and yet stocks are still way higher than a year ago. Americans are feeling glum about the economy, and yet labor productivity is up. It's times like this when it's helpful to get multiple perspectives. Like, how about two presidents of the Federal Reserve banking system? Regular listeners will know that there are 12 regional Fed banks around the country, and Austin Goolsbee leads the Chicago Fed.

0:50Austin comes from academia and says he doesn't have a bias for higher or lower interest rates, that he's neither a hawk nor a dove.

0:59Austan Goolsbee:I always said, I don't aspire to be a bird of any kind. I just wanted to be one of the data dogs. Beth Amick says she's also a data dog. She used to work on Wall Street and now is the president of the Cleveland Fed, which covers Ohio and parts of Kentucky, Pennsylvania and West Virginia. And Cleveland has a bit of a rivalry with Chicago that was apparent right as we were getting the mic set up. Does Austin need to fix his hair or is his hair OK? Austin is bald, if you didn't know. That was a kind of low blow. Now I'm going to have no mercy. I was going to have mercy on Cleveland, and now there's going to be none.

1:35And it was tensions between the academic Austin Goolsbee and the markets-oriented Beth Hammock that we were keen to hear more about. So today on the show, taking the temperature of the economy, the latest on prices, unemployment, and the stability of the entire financial system. After the break.

1:57This message comes from IDTech. Ready for summer? IDTech camps offer Camp Crunch Labs IRL, BattleBots, and more for kids ages 7 to 17. Visit IDTech.com and use code IDTech to save$150. This message comes from Charles Schwab. When it comes to managing your wealth, Schwab gives you more choices, like full-service wealth management and advice when you need it. You can also invest on your own and trade on Think or Swim. Visit Schwab.com to learn more. This message comes from Grainger. This is the story of The One. As a maintenance supervisor at a manufacturing facility, he knows keeping the line up and running is a top priority.

2:37That's why he chooses Grainger. Because when a drive belt gets damaged, Grainger makes it easy to find the exact specs for the replacement product he needs. and next day delivery helps ensure he'll have everything in place and running like clockwork. Call 1-800-GRAINGER, click grainger.com, or just stop by. Grainger, for the ones who get it done. Beth Hammack, President of the Federal Reserve Bank of Cleveland, and Austin Goolsbee, President of the Federal Reserve Bank of Chicago. Welcome to the show.

3:07Austan Goolsbee:Yay, thank you for having us. Thanks for having us. So it's not every day that we get not just one, but two FedBank presidents to talk with. So I wanted to play a game. I'm going to bring up the three main parts of the economy the Fed looks at, inflation, jobs, and the financial system. And I'd like your assessment of what the outlook is, red, orange, yellow, or green. Red, the house is on fire, through to green, meaning everything's looking swell. Are you ready? Yes. I'm ready to go. All right, let's begin with prices. The Fed's goal is to have inflation at 2 % a year. What color are we at with inflation?

3:46So just the color first, starting with Beth, red, orange, yellow, or green? I would say orange on prices. Okay. And Austin?

3:54Austan Goolsbee:Yeah, at least orange. Burnt orange. Orange with a chance of meatballs. You know, it hasn't been great. Okay. Both in the orange range. Beth, can you talk about your rationale for that color? Yeah, inflation has been above our target for coming on five years. We've been trading closer to 3 % than our objective of 2%. We made good progress by 2024. But for the past two years, it's been basically moving sideways. And so part of my assessment, and I'd agree with Austin, that it's definitely at the brighter, the more vibrant color orange. I don't know if that's burnt orange, burnt sienna. My Crayola box is a little bit old.

4:30Austan Goolsbee:And Austin, what's your rationale? I mean, just get in your car and look out the window, the price of gas here in Chicago. And that summarizes what everybody already knows, which is prices are up and they're not happy about it. We've been going the wrong way. And we started last year with a series of what I kept calling it stagflationary dust thrown in the air, where stagflation is where both sides of what the Fed's supposed to be doing start getting worse at the same time. The prices start going up faster than 2%. At the same time, the job market's deteriorating. And I was optimistic that we would get back to this path to 2 % inflation.

5:18Austan Goolsbee:But yikes, it's going from orange to red lately. We had tariffs increasing prices. That was supposed to go away, kind of didn't go away. and now we're at another stagflationary shock on top of it. With the oil shock right now. Yeah, there's a troubling moment. I'd like to turn to the second of the Fed's dual mandate, jobs. The Fed tries to keep unemployment low, also known as full employment. And I'll let you go first. Austin, what mood would your employment mood ring be right now? Yellow. I'd say yellow. And it's an unusual environment in the job market because there are some measures that the job market looks bad, objectively bad.

6:02Austan Goolsbee:The hiring rate is as low as it's been in years. But there are other measures that look fairly benign, like the layoff rate is extremely low. It's just a low churn, low hiring, low firing labor market, which is extremely unusual. I think the thing that explains that is uncertainty. Periods of uncertainty, you tend to see businesses stop hiring, but also not let go of the people that they have. And we've had a lot of uncertainty, but it's mostly stable. And Beth, what's your color and why? Yeah, I would agree. I think we're in that yellow-green kind of area. Maybe a chartreuse. Chartreuse is a good color for it.

6:49Yeah, it's a good word for it.

6:50Austan Goolsbee:I'll go with chartreuse. I'm done with this conversation. Chicago Fed, we don't have shark. It's actually, you know what? It's like the Diet Mountain Dew that President Burke and drinks at the FOMC. That's exactly the color it does. We got some weird people in our world. To me, the best indicator is really the unemployment rate. Because with all the changes that we've had in immigration, it's hard to know what job creation should be to keep things steady. And the unemployment rate that I see right now is right around my estimates of maximum employment. I think we're just in that zip code. And so we'll see how that continues to play through.

7:25It is a fragile type of balance in that it is this low hiring, low firing environment. As the mother of two college age kids, I definitely am hearing about how it's been difficult for new entrants into the workforce. But it does feel like there are still opportunities. There are still places. And, you know, I'd say for my district, the fourth district, what I hear more often when I'm out talking to employers is that they have a hard time finding the workers they need, particularly in places like the skilled trades or manufacturing. The other big sector of the economy the Fed takes a big share of responsibility for is financial stability.

7:57Beth Hammack, what color would you give for your assessment of the U.S. economy's financial stability? I would say we're generally green right now from a financial stability perspective. There are definitely pockets that I'm watching. Private credit is certainly one of them. But on the whole, I feel good about the state of the banking system. Market seems to be moving very well. Over the past month, you've seen financial conditions tighten a bit. That may be a little bit tricky for businesses as both interest rates have gone higher, equity prices have gone lower. But in general, I think from a financial stability perspective, I think the economy is in a good place.

8:31Austan Goolsbee:And Austin? I would split it in two ways. You said the financial system, and there is a part of the financial system that in our language is about payments and the plumbing of the financial system. And the Federal Reserve System literally runs$5 trillion of payments per day over its rails, wire transfers, direct deposit, stuff like that. On that green, solid green, forest green, Amazon green, that's very stable. I'm a little more anxious something about valuations. And when you say valuations, you're meaning companies' valuations in the stock market, prices of things like gold, for example? Yeah, if you look at prices compared to earnings and things like that, It does look like there is a lot of frothiness that has happened.

9:30Austan Goolsbee:And I don't know if that's bubble or if it's rooted in actual productivity improvements that have come from AI or other technologies. But having lived through a few of those cycles, the kind of asset bubble driven boom bust, they can end in tears. Got it. So forest green for the plumbing and what color for that more general financial sector? Maybe that's yellow. I don't know. You're never going to hear me say the words you're true. Well, this has been a full spectrum of economic insights. Thank you for joining Austin Goolsbee and Beth Hammock. Thanks for having us. Yeah, it really our pleasure.

10:14This episode was produced by Corey Bridges and engineered by Kweisi Lee. It was fact-checked by Vito Emanuel. Kate Kincannon edits the show and The Indicator is a production of NPR.

10:49people are overpaying on car insurance. Why? Switching providers can be a pain. Jerry helps make the process painless. Jerry is the only app that compares rates from over 50 insurers in minutes and helps you switch fast with no spam calls or hidden fees. Drivers who save with Jerry could save over$1 ,300 a year. Before you renew your car insurance policy, download the Jerry app or head to jerry.ai.npr.