in those meetings. So, so you're in that place now where it's managing, like you say, it's creeping up because of a variety of things, whether it's the Russian war or the Iran war, the trade war moves or anything else. People are suffering at these higher grocery prices. Uh, inflation is weirdly steady but not seemingly moving in any real direction.
Yeah, it's not coming down, right?
Employment same. It's kind of steady, but not really. You're not seeing robust, other than data centers and AI. You're not really seeing the rest of the economy having much, uh, being very robust in the way that it's creating things.
Yeah. Look, that that's what I I describe that as the job market is stable without being good. And right, there's a weird combination that people throw around this phrase, low hiring, low firing. It's worth taking a second to realize that's extremely unusual. Usually, if there's low hiring, there's a lot of layoffs. Or if there's low layoffs and low firings, there's a lot of hiring. That both of those are low at the same time is really weird. The hiring rate is so low, it's characterized, if if I told you we're in the depths of a recession, that's what you would think by how low the hiring rate is.
Jon Stewart sits down to break down the most urgent political and economic issues shaping the nation. When the central bank admits the labor market looks like a recession on hiring, but an economic boom on layoffs, it exposes how strange this economy really is. Jon Stewart sits down with Chicago Fed President Austan Goolsbee to pull back the curtain on interest rate hikes, corporate uncertainty, and whether central bankers can actually control inflation without crushing working-class families. Hit like and let's watch.
The Fed is is charged with this idea of, you know, if employment if we're in a deep recession, they might say we're going to cut rates because that will stimulate the economy and then hopefully as the money pours into the economy, people will start hiring again. Uh, if employment is steady and looking good but inflation is sticky and above that 2% mark, which it is now, like although the the the new I guess CPI came out, it was lower a little bit than they thought, it had cooled a little bit, but if that's the case, they might raise interest rates because employment looks robust but they need to bring down. The problem is when they get into where employment doesn't look great but inflation is still up and then you're in that weird, I guess they call stagflation.
Stagflation. Right. Look, look at you, Jon. Like, you got the you got the whole thing wired.
The basic the basic idea is that the the most cyclical parts of the economy, whether they're durable goods, manufacturing, autos, stuff like that, business investment, construction of data centers or what have you. These parts of the economy also tend to be the most interest rate sensitive. So that's why the Fed kind of becomes the tip of the spear. Why use the interest rate to counteract the business cycle? Because these really cyclical if the economy is overheating, then you raise the interest rate to try to cool it down and ease inflation. If it looks like you're teetering on recession, then you reduce the interest rate and try to get people buying more cars, building more houses, doing more business investment. When it goes wrong, the the the economists call that the divine coincidence.
Of course it's only a coincidence. Nothing to do with the union.
Well, the coincidence part is usually those two, the dual mandate, they aren't in conflict.
But when the divine coincidence starts going wrong is when both things start getting worse at the same time.
And we're somewhat in that cycle now. Not like we were in the 70s, but somewhere.
We're kind of in that cycle because things like oil prices going up, they drive down employment and up prices at the same time. Supply chains getting interfered with and wrecked. Anything that on in our language is happening on the supply side, right?
That's a stagflationary direction shock. And that's the nightmare of the central bank.
Now it's the 70s. Now it's a 70s though, as I say, it's not the 70s. This is stagflationary direction.
I personally agree with Goolsbee. Goolsbee accurately describes how supply side shocks like global conflict or trade disruptions strip central banks of their standard playbook by pushing prices up while dragging growth down. But labeling current conditions not the 70s minimizes how severely cumulative inflation over recent years continues to strain household grocery budgets. Central bankers love framing economic pain as technical direction shocks. But for working families, higher prices and stagnant wages feel like real world stagflation regardless of the decade. When monetary policy relies almost exclusively on tweaking interest rates, it penalizes ordinary buyers looking for auto loans or mortgages while failing to fix supply bottlenecks. But let me know down below. If interest rate hikes can't repair broken supply chains or global oil spikes, why do central banks keep using them as their primary weapon against inflation?
But if you could pull out your magic crystal eight ball and call the 1970s and say, 'Hey, you guys dealt with stagflation. What do we do?' They would say, 'Oh man, it's a nightmare. What's your unemployment rate?' And you're going to say, 'Well, it's a little over 4%.' 'What?' They're going to be like, 'What's your inflation rate?' Well, you know, it's it's it's up to 4%. They're going to hang up on you and say like, 'Why are you bothering us? We we have unemployment that's almost... We have unemployment that's almost 10% and inflation is 14%.' And so, let us never go back to the 70s. But but this this dilemma of what do you do when both things go wrong? That's a tough spot.
So in those meetings, so so you're in that place now where it's managing, like you say, it's creeping up because of a variety of things, whether it's the Russian war or the Iran war, the trade war moves or anything else. People are suffering at these higher grocery prices. Uh, inflation is weirdly steady but not seemingly moving in any real direction.
Yeah, it's not coming down, right?
Employment same. It's kind of steady but not really. You're not seeing robust, other than data centers and AI. You're not really seeing the rest of the economy having much, uh, being very robust in the way that it's creating things.
Yeah. Look, that that's what I I describe that as the job market is stable without being good. And right, there's a weird combination that people throw around this phrase, low hiring, low firing. It's worth taking a second to realize that's extremely unusual. Usually, if there's low hiring, there's a lot of layoffs. Or if there's low layoffs and low firings, there's a lot of hiring. That both of those are low at the same time is really weird. The hiring rate is so low it's characterized, if if I told you we're in the depths of a recession, that's what you would think by how low the hiring rate is. But if I told you the layoff rate, you'd think we're in a huge boom. That's how low the the layoff rate is. So it's stable without being good.
Do you have a sense of why that is? Is that because the economy is being boosted by one particular sector? To in other words, it's got a high ceiling but it's really shallow.
Interesting. I was going to say something totally different. I attribute that combination to a lot of uncertainty that businesses say, 'Yikes, I don't know what the rules are going to be. I don't know what the tariffs are going to be.'
Okay. I'm not going to get rid of anybody because I might need them.
Right away. But I'm not going to hire anybody. So that's where my head is now.
Your idea is smarter than mine, by the way.
Stewart and Goolsbee hit on a critical dynamic. Trade policy volatility and rapid AI deployment have frozen corporate decision-making into a defensive standstill. However, treating corporate uncertainty as the sole cause of low hiring overlooks how high interest rates deliberately choke off small business expansion and startup capital. When businesses freeze hiring out of fear while keeping current workers out of desperation, it creates a stagnant economy where young workers can't find a foothold. A low hiring, low firing market locks working-class families into place, preventing wage growth and limiting upward economic mobility across major employment sectors. But let me ask, how can younger generations build wealth or advance their careers when major industries refuse to hire new talent due to macroeconomic uncertainty?
No, no, no. Actually, your your idea is a I I I do think we should think through if the let's call that a a sector sector specific just if it's all data centers. This could be a this could characterize it if it's kind of like we've got a bunch of workers that are trained for one thing and now it's going to take a while for them to get retrained and shift to somewhere else. We we better think that through. But the uncertainty plays into that as well because people I think are also not sure is the promise of this AI going to be a boon for us or is it going to be a disaster where and if you talk to young people, it's kind of like, hey, should I even invest in this skill set to what what was a great job? You know, I'm trained to be an accountant in eight years. Are there not going to be any accountants? Like it's all going to be done in the computer. So so that that might also be a part of it.
Honestly, I think the economy of the uh future is just all of us kind of trading health care with each other. It's all you're all just going to be us changing each other's bed pans for money and that's it.
Exactly. So, the thing is that that health part of the economy just gets bigger and bigger as a share of the of the GDP over time. So they they used to have this joke, but it wasn't even really a joke. In the job market, there were more and more economists coming and presenting their papers about about health economics. And somebody said, 'God, in 20 years, everybody is going to be a health economist,' but that's because the entire economy will be health. So so it would make sense. I I think there's something to that.
Now, when you guys So, when you're in the meeting and you're talking about the various uh uh nuances of of things that are going on, and you say to yourselves, 'Well, our only option is that 25 basis points up, 25 basis point down, holding it steady,' and you're feeling the political pressure cuz you're humans and you live in the world and a president is using his bully pulpit to do whatever he's doing, and the guy sitting at the front of the table is somehow being investigated for mortgage fraud and the other woman is being investigated for like so you're feeling all those pressures. You have to be. Do you ever think, 'I wish we had different tools? I wish we had other options?'
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