Chicago Fed President Austan Goolsbee says policymakers are facing a difficult economic environment as signs of weakness begin appearing in the labor market.
New data from the U.S. Bureau of Labor Statistics shows total nonfarm payroll employment declined by 92,000 in February while the unemployment rate held steady at 4.4%.
The figure is a surprise to many analysts, after US jobs increased by 126,000 in January.
Speaking in a Bloomberg interview, Goolsbee says the broader economy remains supported by strong consumer spending, even as inflation remains stubbornly above the central bank’s target.
“The strongest thing in the economy is not AI data center investment, has been consumer spending being solid in a kind of a broad-based way in the economy. But the inflation hasn’t been ideal. It’s at least stalled out at 3%, and some of the latest measures, the inflation is disturbingly high in non-tariff categories like services.”
He also says he’s seeing unusual conditions in the labor market, where hiring remains weak even as layoffs stay low.
“But each time we add an uncertainty, I think the job market characterized by low hiring, simultaneously with low layoffs, is a weird combination.”
Goolsbee says the unusual data makes it harder for policymakers to determine when to take action, while warning that the biggest danger he’s seeing is a stagflationary shock.
“As with any supply side shock, it can lead you in a stagflationary direction, which is to say the inflation side of the mandate getting worse at the same time the employment side of the mandate is getting worse.
And that’s always the worst-case scenario for the central bank because there’s not an obvious monetary policy answer to a stagflationary shock.”
Stagflation happens when inflation rises while economic growth and the labor market weaken.
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.