The following is a transcript of an interview with Austin Goolsby, President and CEO of the Federal Reserve Bank of Chicago, which aired on “Face the Nation” on May 28, 2023.
MARGARET BRENNAN: Now we go to Austin Goolsby, who is the current president of the Federal Reserve Bank of Chicago and a former White House economic adviser in the Obama administration. It’s nice to talk to you. I know you were the chairman of President Obama’s Council of Economic Advisers when we came to the bank in 2011. The markets are closed tomorrow, but we’re still very close to that deadline. How dangerous is the territory we’re in, even with this conditional deal?
FEDERAL RESERVE BANK OF CHICAGO PRESIDENT OSTAN GOOLSBY: Well, it’s definitely a little dangerous, you know, because, as Chairman Powell has said from the beginning, we have to raise the debt ceiling. Now fiscal decisions, of course, are between Congress and the president. And yet, they fix it, and that’s fine by us. But if you, if you didn’t do that, the consequences for the financial system and for the economy as a whole would be extremely negative.
MARGARET BRENNAN: How important is it that this vote succeeds on the first try?
GOOLSBY: As I said, this is a fiscal decision left up to Congress and the president. So I… this is, it won’t be the place…
MARGARET BRENNAN: Exactly.
GOOLSBY: — for anyone at the Federal Reserve to say what — what they should accept or, or how they should vote.
MARGARET BRENNAN: Yes.
GOOLSBY: But you know, I — I also liken it to — there’s a legitimate argument, if you’re trying to lose weight, you know what, what you can eat and how much exercise everybody should be able to agree that the first strategy is not to cut your toe. right Because it doesn’t save much weight and it’s really painful. And that’s where the debt ceiling is.
MARGARET BRENNAN: Well, Treasury Secretary Yellen said, it’s already kind of painful, um, because she’s already seeing borrowing costs and- and- that- going up and that there’s a cost to being in that place on the edge. What is — can you somehow quantify what the impact is on the economy of where we are?
GOOLSBY: Yes. Look, Margaret, you raise a great point that even the anticipation of these problems has consequences for the economy and has consequences for the financial markets. In a way, it couldn’t come at a worse time. So I’m — I’m definitely encouraged that you’ve seen both parties on the agenda express confidence that they’re going to be able to raise the debt ceiling. And, and — because if you, if you just look at what’s going on with interest rates, you’re already seeing that — that there’s fear and uncertainty, but there’s multiple steps that could get worse. So if you have banks that are already on edge because of the financial and banking stress that we’ve seen over the last few months, take the safest asset on anyone’s balance sheet, which is US Treasuries, and kind of call it The issue is not good for the banking system, not good for lending, not good for the real economy. And you will start facing other problems like if the rating agencies downgrade the rating…
MARGARET BRENNAN: Yes.
GOOLSBY. –U.S. Treasuries again, then that could raise the interest rates we have to pay even more and you’re going to run into secondary problems. Like there are insurance companies that aren’t allowed to hold things that aren’t rated high enough. So let’s just avoid it.
MARGARET BRENNAN: Exactly.
GOOLSBY: Let’s just raise the debt ceiling and move on to the next thing.
MARGARET BRENNAN: Exactly. Um, I understand that you’re in a very different role now at the Federal Reserve than you were then, but it’s a complex economic environment that we’re in. Can you say that at this point I know you haven’t seen the text, nobody has seen it what this is going to do to fight inflation and some of the choices you’re going to have to make at the Fed.
GOOLSBY: Well, look, like I said, raising the debt ceiling and budget decisions have… that… that’s not the Fed’s business. Act gives Fed two jobs, boosts employment, stabilizes prices. We have done very well in terms of employment. We are improving in terms of inflation, but we have not succeeded. Inflation is still much higher than we want it to be. So – at a time of banking crisis, it will be a great relief if we raise the debt ceiling, get back to dealing with the issues at hand, which are part of the real economy, of employment and inflation.
MARGARET BRENNAN: Any idea if you personally want to raise interest rates again at the next meeting in June?
GOOLSBY: Well, you know, as a voting member of the FOMC, I’ve tried not to belabor the point of not prejudging and making decisions when you’re still weeks away from the meeting. And we will get very important data from now. I think the part that makes this job difficult is that you have two simple goals, but the actions that the Federal Reserve takes take months or even years to work their way through the system. So the Fed has raised interest rates by five full percentage points over the past year. That’s the fastest increase in decades, rivaling so far. And some of that still has to make its way through the system.
MARGARET BRENNAN: Yes.
GOOLSBY: So there’s no question. Inflation is still too high. It has fallen and we are just trying to cope, can we reduce inflation….
MARGARET BRENNAN: Okay.
GOOLSBY: –without starting a recession? There are people who say we can’t, but I think we, that we can, and that’s certainly the goal.
MARGARET BRENNAN: Okay. President Goolsbee, thank you for your time. And we’ll be right back with more FACE THE NATION. Stay with us.