‘Golden Path’ to a Soft Landing Is Still Possible, Says Chicago Fed’s Goolsbee
The Wisconsin Bankers Association’s Midwest Economic Forecast Forum featured a fireside chat with Federal Reserve Bank of Chicago President and CEO Austan Goolsbee, moderated by WBA President and CEO Rose Oswald Poels. The discussion spanned the Fed’s dual mandate (price stability and maximum employment), economic trends, supply chains, natural disasters, energy prices, Midwest industries, and the housing market — providing a detailed analysis of current economic conditions and forward-looking perspectives. Goolsbee is often asked whether he is a hawk or a dove, to which he jokingly replies, “I’m not a bird, I’m a data dog!” Throughout the program, Goolsbee provided an overview of the data the Fed monitors, accompanied by insightful analysis.
Inflation Trends and Economic Outlook
Goolsbee highlighted the Federal Reserve’s dual mandate of price stability and maximum employment. He noted that while employment has remained strong, the focus has been on curbing inflation, which has seen significant progress. The latest Consumer Price Index (CPI) showed a 2.9% year-over-year increase, reflecting improvements from previous peaks. Goolsbee emphasized the importance of analyzing long-term trends rather than monthly fluctuations, describing inflation as a “noisy series.”
Goolsbee is still optimistic that the economy can continue growing in 2025 and have a soft landing. He has been describing it as the “golden path.” Recent months have provided encouraging signs across core components: services, goods, and housing. Goods and services inflation has come down, and recently, housing inflation — a key post-COVID challenge — has started to come down. Despite progress, Goolsbee acknowledged seasonal patterns that typically bring higher inflation in early quarters, emphasizing the need for continued vigilance.
Policy Impacts and Scenario Planning
When addressing the potential economic implications of changing administrations, Goolsbee underscored the Federal Reserve’s role in adapting to policy changes. Using a metaphor well known to Midwesterners, “there is no bad weather, only bad clothing,” he likened putting on the proper jacket for the weather to scenario planning for policy implications for inflation and employment. Fiscal policies, including tax cuts and government spending adjustments, were cited as areas requiring comprehensive analysis to understand net effects — not just the effects of individual policies.
Supply Chains and Natural Disasters
Goolsbee discussed supply chain disruptions and their role in recent economic cycles. Recovery from COVID-related supply chain breakdowns significantly contributed to lowering inflation without inducing a recession. However, natural disasters, such as wildfires in California, can pose ongoing risks to supply chains and regional economies. While these events often have devastating immediate local impacts, rebuilding efforts can stimulate economic activity.
The increasing frequency of natural disasters has raised concerns about long-term economic adjustments, including shifts in where people choose to live and how they manage risks. Goolsbee noted that such supply-side shocks necessitate careful monitoring to mitigate broader economic disruptions.
Employment, Consumer Behavior, and Sentiment
The U.S. labor market has remained robust, with unemployment near 4%. Despite high wage growth, inflation has continued to decline, challenging traditional assumptions about their correlation. Goolsbee attributed this to nuanced sectoral dynamics and emphasized the importance of forward-looking indicators to guide monetary policy.
Consumer sentiment has diverged from objective economic metrics, with political partisanism influencing perceptions. Goolsbee pointed out that while sentiment data historically predicted spending trends, recent shifts have reduced its predictive value. Despite this, consumer spending and income growth remain strong.
Regional Economic Insights
Manufacturing and Healthcare
The Midwest’s economic health is closely tied to manufacturing, particularly durable goods and autos. Post-COVID shifts from goods to services spending have pressured the sector. Goolsbee noted that while manufacturing is not in crisis, it faces challenges as demand normalizes to include more services and phase out artificially high demand for goods. Healthcare, a major employer in the Midwest, is another area that Goolsbee pays attention to in terms of employment and consumer spending. While inflation in the healthcare and healthcare insurance industries has been lower than overall inflation, prices remain expensive.
Housing Market Dynamics
Housing affordability and inflation remain pressing concerns, with the relative prices of homes compared to other durable goods shifting dramatically over decades. Goolsbee projected interest rates to stay above pre-pandemic lows but below current levels. He highlighted the structural issues driving housing inflation, including decades of insufficient building, which have exacerbated affordability challenges in both urban and rural areas. He noted that no matter where he goes, employers will say their biggest hiring problem is that the cost of housing is so high that people won’t move there.
Agriculture and Energy
The agricultural sector has faced a challenging year following blockbuster periods. Food inflation has declined, but input costs remain high, squeezing farm incomes. Energy prices, particularly in the Upper Midwest during winter, pose concerns for households but are less emphasized in core inflation metrics. Goolsbee acknowledged the broader economic implications of volatile energy prices, especially in the context of geopolitical tensions.
Reflections on Two Years at the Fed
Reflecting on his tenure, Goolsbee expressed admiration for the mission-driven culture of Federal Reserve employees. He described Federal Open Market Committee (FOMC) meetings as highly deliberative and impactful. Operationally, he highlighted the Reserve Bank’s role in managing significant cash volumes and supporting member banks.
Goolsbee reaffirmed the Federal Reserve’s commitment to its 2% inflation target, emphasizing its role as a cornerstone of public confidence. He noted that while the path to achieving this target involves navigating uncertainties, the Fed remains steadfast in its mission.
In closing, Goolsbee commended the robust partnership between the Chicago Fed and regional stakeholders such as the Wisconsin Bankers Association, emphasizing the importance of communication in addressing economic challenges.
The Midwest Economic Forecast Forum was presented by the Wisconsin Bankers Association in partnership with the Illinois Bankers Association, Michigan Bankers Association, Minnesota Bankers Association, South Dakota Bankers Association, and Wisconsin Bankers Foundation. A special thank you to 2025 event sponsors BOK Financial Capital Markets and Wipfli.
