Illinois, and we're pleased to have Provost John Coleman, Vice President and CFO Paul Ellinger, and Grainger College of Engineering Dean Rasheed Bashir with us today. And I'd also like to recognize Brian McCannon, Dean of the School of Business at Illinois Wesleyan University, and Pam Lau, President of Parkland College. So it's just my pleasure to thank you all for being here and to welcome all of you. Now I'll turn things over to Laura.
Good afternoon. I'm Laura Weise, President and CEO of the Champaign County Chamber of Commerce. Thank you for joining us today. We are especially pleased to partner with the Illinois Manufacturers Association and the Champaign County Economic Development Corporation to bring this conversation to our community. When we hear Federal Reserve, it can sometimes feel like it's a little removed from our day-to-day realities of running a business. Economists talking about interest rates, inflation, and economic indicators. But there isn't a business or an organization in this room that isn't affected by the issues that the Fed is watching and by the decisions that it makes. It shows up in what it costs to borrow money to expand a business or to buy a piece of equipment. We see it in what our customers can afford to spend, in hiring and wages, and ultimately in the confidence businesses and organizations have to make that next investment. And those decisions are rarely made with perfect information. As business leaders, we are constantly trying to figure out what's coming next. Is the economy growing or slowing? Are costs going to stabilize? Where are the interest rates headed? And most importantly, what does that mean for all of the decisions that we need to make? And that's what makes today's opportunity so valuable. We get to hear directly from someone who is not simply studying the economy, but who also has a seat at the table where U.S. monetary policy is discussed and decided.
So we want to thank all of you for being here today, and we hope that you leave today with a little better understanding of what the Federal Reserve is seeing in the economy, what it is watching, and what it could mean for your business or organization in the months ahead. And so now I invite you to enjoy lunch, and our program will begin shortly. Thank you.
All right. Good afternoon, everyone. I'm sorry to interrupt the conversation, but we have such a great program. I want to make sure that we have enough time for everything. My name is Karly McCory McKay. I lead the Champaign County Economic Development Corporation, and again want to express our sincere thanks for you all being here today and to our sponsors for making it possible. It is my pleasure to welcome our two panelists to the stage.
Cara Demerge, who works at the intersection of marketing, policy, and industry transformation. She is the founder and president of DCC Marketing Indicator, where she leads a nationally recognized strategic marketing and communications firm, and she is also the senior vice president at TCCI Manufacturing, where she drives the strategic positioning of a global thermal management solutions company.
It is also my pleasure to introduce today's featured speaker, Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago. There, he serves on the Federal Open Market Committee and helps shape monetary policy for our nation, while leading the Federal Reserve's work throughout the Midwest, of course, including Illinois. Before joining the Fed in 2023, he was a longtime economics professor at the University of Chicago and also served as Chairman of the Council of Economic Advisers for the Obama administration. I think what we appreciate most about Austan is his commitment to getting out into our communities, listening to business leaders, workers, and local stakeholders, and then bringing those real-world perspectives back into the economic conversation. Today, he's going to share his insights on the economy and what he's hearing from businesses and communities across our region. Please join me in welcoming him to the stage.
Hello. Hello. Whoa. Want to turn it down a little.
Be louder than the... I don't even know that I need this. It is so wonderful to have you in Central Illinois. I'm very excited to moderate today's session, and I kind of want to just start with — we were talking earlier — that in the Young Presidents' Organization that I'm in, we always start by saying, if you knew me, you'd know I... And so just a little bit more about something unique about you, Austin, that everybody can really get to feel who you are.
Well, I said I was about 10% prepper on the side, and I'll forage mushrooms from the woods. And it's one of those things — I love the outdoors. And last year, me and another guy, we went out and found 75 pounds of maitake mushrooms in the woods. I can show you the picture; it's like unbelievable bounty. And we split it. And what am I going to do with 37 pounds of mushrooms? So I broke them into little bags and I came in and I handed them to anybody at the Federal Reserve Bank. I said, 'Hey, if you want some maitake mushrooms, here they are.' And then the head of HR came and chewed me out. 'I got some real problems with this. What do you know? What if everybody gets sick from the mushrooms that you gave them?' I said, 'They're not going to get sick.' 'How do I know you even know anything about this?' So.
And I told them, if you knew me, you would know that whenever I go out and there happens to be a band on a stage, I love to go find the tambourine and find my way up on stage to play the tambourine.
That sounds a lot more fun than the mushrooms. But we're not here to talk about mushroom hunting or tambourine playing. We're really here to talk more about what the Fed does, what role it plays in these economic conditions today. And I think it'd be great if you could just start with telling us a little about your journey, how you got to where you are today, and what it is that you really do, and how did we come up with this 2%?
You know, you're all over the map here. We got several things there. My journey — and if any of you know Dean Brown here, I did a lot of homework. I was an economics PhD and professor at the University of Chicago Business School for 30 years. I had a foray in Washington, D.C. President Obama was teaching at the University of Chicago where I was, and he has two daughters — our oldest daughter is in between them, and they were at school together. So, as I said, I kind of knew him as the guy from the birthday parties, and Michelle was way more famous than him. She had a major job at the university. So when he first ran for the Senate in 2003, 2004, they called around, and somebody called me and they said, 'Oh, would you help economics with this guy? His name is Barack Obama.' It's like, 'That's Michelle Obama's husband. Who cares what his name is?' Fine, of course.
I went to D.C. for a couple of years. I was at the Council of Economic Advisers at the very beginning, through the financial crisis. I came back, and I was back at the University of Chicago for another eight or 10 years. And the thing about the Federal Reserve banks is they have an important regional function as well as national. It's a policy job, and there's mandatory retirement at age 65. So the previous president, you might have met him, Charlie Evans, is a lovely guy, but his birthday is public information. So these guys have to retire at age 65. And the Fed is still one foot very much in economic research, plus it's policy, plus I'm from here — I didn't have to move. It's not going to D.C. So I applied for the job, and that's kind of how I ended up there.
And it's been exciting. It's been a weird moment, as you might imagine, for the Fed in general and for inflation. We were coming out of the first inflation in a long time. So I don't regret it. I think it's been exciting. And if you're an econ nerd like me, going to the FOMC room is the holiest of holies. And it's just as cool as what I wanted it to be.
Side embarrassing side note: there's a rule. There's a huge table. Everybody sits around the table and they're going to go around the room. You know, 'Jay Powell, what do you think about the economy? Chairman Kevin Walsh, what do you think about the economy?' Everybody's Oprah-style: 'You get a car, you get a car, you get a car.' And it's very secretive; all the shades are down so nobody can spy on you. It's like you're working in the Situation Room. All the electronic devices, everything has to be left out of there. And I'm at my very first meeting. I've been there five minutes. I'm still just in this glow. I'm in the FOMC room. And then the meeting begins. Chairman Powell said, 'Welcome to the thing,' and somebody's phone starts ringing. And I'm like, 'What idiot brought their phone?' And I realize, 'Oh god. Oh god. Now I have two phones.' And I had left my phone, but I didn't leave my second phone. So everybody's like — so my Fed career was almost cut short, you know, by one Scaramucci or something.
Well, we're glad you're still here.
But I'm still here. So that's my journey. And then the last part of your question was where did 2% come from? The law says that when setting monetary policy, the Fed must stabilize prices and maximize employment. And in our language, we call that the dual mandate. That's what it says by law. We have interpreted what does it mean to stabilize prices to be: get the inflation rate to 2%. It should be something — whether it's 2% or not 2% is kind of the argument, but.
Not necessarily zero, because if you aimed for zero, you would be much more likely to encounter periods where the interest rate is zero, which we went for a long time with the interest rate at zero. It's hard to do monetary policy when you're at the zero lower bound. So a little something, but not too much that anybody has to think about it. That's where it came from. And then literally 2% came from some guy at the Bank of New Zealand. It — taking a shower, was like, 'What about 2%?' And that's evidently where 2% came from is a guy at the Bank of New Zealand. And everybody's kind of congealed around that. So now everybody's like, 'Yeah, 2%. 2% is low enough that you don't think about it, but it's not zero.' So that's a dumb explanation, but that is the best I can tell. That's the explanation.
Well, I think, you know, threading a needle today, there's so much happening in our economy and in the global marketplace. And I want to start with the middle market a little bit. As you know, I'm the board chair for the Illinois Manufacturers Association, and not just in Illinois but nationally, our middle market plays a huge role in our economy. And right now there's pressure on every side, from the larger customer perspective down to the consumer. There's increased labor costs, there's increased health care costs, and it becomes really difficult to balance — from the Fed's perspective, how do we balance this situation, this kind of conundrum of what's happening out there right now?
My wife's originally from New Jersey, and they always say New Jersey's problem is it's constantly having New York City shoved down its throat and Philadelphia stuffed up its butt, and that's kind of the middle market. You're getting the double sandwich squeeze: the customers pushing back, 'Ah, the price is too high,' and the cost of everything going up. You got fuel costs, you got tariffs, especially in manufacturing, you got tariffs, supply chain disruption.
Competition from the AI data centers driving up the cost of construction, the cost of those. In the Fed, the thing to remember is the Fed's day job is about the business cycle. And it has only one tool that it can adjust — this overnight interest rate. And usually it works because the most interest-rate-sensitive sectors of the economy are also the most cyclical sectors of the economy. So if the economy is overheating, you raise the interest rate and try to cool it off. And if the economy is chilling, you lower the interest rate and try to stimulate it. That thing of the business cycle kind of doesn't work exactly if you're facing supply shocks that are making both sides of the mandate worse at the same time. So something like the price of oil, which drives up inflation and drives up unemployment at the same time — that's a central bank nightmare, because there's not an obvious — it's not obvious what you do to respond to it.
I will say, if you look at the middle market now, if you look at manufacturing — and this Chicago 7th District is sort of the heart of the Midwest, most of all of Illinois, Wisconsin, Iowa, Michigan, Indiana — very cyclical, the most manufacturing of all the districts. Demand isn't the problem right now. It's cost. Cost is the problem. And everywhere you go, you're hearing the cost of diesel is over $6 a gallon, the cost of data centers, the cost of construction, finding skilled labor, the wage pressures are high. That's informative. So I kind of think the middle market, you're stuck in an uncomfortable spot, but it could be worse — which is when demand falls apart, then all you hear about is, you don't hear just about cost, you hear about there's no customers. What are we going to do? And you're not hearing that. So there's some silver linings.
Yeah. I mean, you know, from the perspective of a manufacturer, just putting on my manufacturing hat and living in this middle market world, the increased competition from China still is a significant player, the cost of tariffs, the inconsistency right now in the global marketplace, the increased costs of wages — all of that is such an impact for us. And then we have the pressures of cost down from our larger customers that are saying, you know, 'You've got to pull those costs down. This is the squeeze.' So it's just a constant squeeze, and you're always trying to balance that.
You use the word balance, and that's the right word. Now, the context has been over the last five years: if you look nationwide, business margins are as big as they've ever been. So there is the — and when you first look at the data, people will say that can't be true. This has been the most stressful environment, you know, in my career. But the margins have been there — but they're thinning. They're thinning. So the level was high, but they're thinning, and so there's a tension.
Which causes a lot more preciseness that we as business owners have to have in order to manage those effectively. So with all of the inconsistencies happening right now, it becomes really difficult to do that — the uncertainty.
I hear that a lot. And we thought we had — let's say, when is it, April of last year, on Liberation Day, they announced what the tariffs are going to be. Throughout the Midwest, people's hair is on fire. I'm mostly impervious, but people's hair is on fire. If these tariffs come in at these rates, we're dead. I mean, our margin is, whatever, 12%. If you put in a 30% tariff, it won't work. Now,
ingenuity — I think they exempt USMCA-compliant. It's not going to apply to all components and supplies. We get to a period of some stability. 'Hey, maybe this will be okay.' Now there is more uncertainty back again, particularly for anybody who's connected to Canada.
As the tensions rise, the uncertainty rises. And I don't find it that some people have been surprised at the following observation in the labor market data: the hiring rate is as low as at the trough of a recession — very low hiring rate. The layoff rate is as low as at the peak of a boom — very low layoff rate. How is that? That's an extremely unusual combination. And I think that combination comes from uncertainty. They just say, 'I'm not going to get rid of anybody, but I'm definitely not going to bring new people on,' you know.
Yeah. Which then brings AI into the picture, right? How many people in the audience are trying to integrate AI into their businesses in some form, whether that's on a production floor to take out that no-joy work, to create better efficiencies? I would imagine everybody in some form at all levels, large and small, are trying to do that right now. And how does that play into this? We talk about trying to increase our workforce, but also that becomes a difficult task with the cost of that. So how do we balance again — balance automation, AI integration into this? And how do you see that shift in U.S. economic growth, employment, and inflation?
The following is a little bit — it's two-thirds copout but one-third insight, which is: I don't know what... Remember my thing that the Fed is fundamentally about the short-run business cycle; that's what the Fed is trying to do. Okay. So it is a deep and important question how is the rise of AI or any technology going to affect the productivity growth rate of the country. And if we have higher productivity growth going forward, that's good for us. Yes, it's going to come with problems, but that's how we got to be as rich as we are now is through this productivity growth. But for the day job of the Fed, that's not really the day job of the Fed.
If you're asking how will business balance this out and how much will productivity go up, I'm not sure. But I do know that in the next six months, if everyone believes that there's going to be a huge increase in productivity coming, that's a high danger to overheat the economy right now before that's happened. So you've already seen the valuations of these companies going way up, and then those companies saying, 'We got to invest trillions of dollars in building out these data centers and hiring every electrician in the state of Illinois to come build the data centers.' And the thing is, that's just old-fashioned overheating of the economy that the Fed tempers against.
If you see the spread of that generating an inflationary impulse going through the economy, that's not a supply shock. That's something where the unemployment rate goes down and the inflation rate goes up, and the Fed needs to take action to prevent that from spiraling. So there is a very real sense in which the bigger the AI hype about the future, the bigger the danger of the overheating in the short run. And that's why it's a two-thirds copout. You were asking me a deep question: what is AI going to do to productivity? And I'm kind of like, that's not my job. But my job is to think if that is going to change it, then it is going to affect my job. Yeah. Exactly.
Yeah. You know, thinking about Wall Street versus Main Street and the huge divide between, you know, affordability, consumer economics and business economics, really. What do you see from the collapse of public trust out there, and how does that impact what you're doing and how you think about and approach your view of the economics in this country?
It's kind of two parts. One is about — I mean, everywhere you go in this district, which I'm not going to other people's districts, you hear prices, inflation, cost, whether it's from business, whether it's from people, consumers. This is their paramount concern about the economy right now. It's not, 'Hey, I might take my job,' you know — a bunch of stuff is farther down. It's like, 'I went to the grocery store and it is unbelievable to me how expensive it is to just buy the same stuff that I'm always buying.' In an environment like that, it contributes to — I don't even know what the right word is. People are annoyed. They're irritated about the economy. And you see this in consumer sentiment measures.
When inflation is high, especially when gasoline prices are high, which they are definitely high, people are grumpy and they express that. And it's not unlike your teaching evaluations. If you're a teacher, they got all these categories like was the person organized, were they clear, were they this? If the students decide they're mad at you and they didn't like you, you're going to have been the most organized person in the world — they're not going to give you high organization. You're going to get crappy scores on everything. And there is an element of consumer sentiment that is like that. When people are in a bad mood, they're going to express that across the board.
It contributes to the second part of your question, which is: for many years now, we have been going through — I think that's the right description — a crisis of public trust in institutions. And it's bigger: the public trust crisis is bigger for national institutions, it's bigger for anything that's elite, it's bigger for anything that has to do with the federal government, it's bigger for banks. And the Fed is in this Venn diagram of anger. The Fed is like right in the middle of all of those things: big, faceless, seems like it's the government, seems like it's banks.
When I started at the Fed, I went and looked up the polling — and you could ask the people from the Chicago Fed. My very first talk to the employees, I said the poll shows that 70-something percent of the American people say they are familiar with the Federal Reserve, but they don't know what it does. Okay, big majority. But an even bigger majority said that while they didn't know what the Federal Reserve does, they think they're doing a bad job at it.
And that — look, part of that is because, look, when inflation is high, people are going to have more of a crisis of public trust in the institutions, even if they don't know the mechanism. Like if you took your car to the shop and then you drive out and it breaks down, you're mad at the mechanic. 'I don't know how that engine works, but what did you do? My car doesn't work.' So I tried, from the second I got to Chicago Fed, to try in the same way people hate Congress but they think their congressperson is a decent person, and they don't like banks but they like their bank: 'I have a good bank. We're your central bank, the Chicago Fed. We're from this place. We're from this region.' I've been wanting to try to hear from folks in the district.
And I will tell you, when we go to the FOMC meetings, everybody's kind of proud of their own thing, but they do ask, because we're a bit the canary in the coal mine — because we're as manufacturing-oriented, agriculture-oriented, as cyclical as we are, there is national interest in, well, what's happening in the Seventh District, because that's a bit of a leading indicator for the nation.
How do you just — peeling back the onion a little bit on that? You know, when you talk about getting insights and hearing all this and knowing that all this is happening and you being in the middle of it.
That Venn diagram, when you're sitting and talking about policy and sitting in this conversation, how does that play a role in what you're doing and the conversations and direction that you're...
