Morning Brew Daily - How the Fed Evaluates Inflation During a Shutdown, with the Chicago Fed President

Episode Date: October 16, 2025

Episode 693: In this very special episode, Neal and Toby sit down with the president of the Federal Reserve Bank of Chicago Austan Goolsbee to discuss how the country’s central bank is managing the data blackout from the government shutdown. Whether or not AI is actually affecting jobs for early grads or if it's just hype. Also, the importance of the Fed maintaining its independence from political influence. Then, it’s an inside look into the voting process of a FOMC meeting.  Get your paper tablet at https://www.remarkable.com today Get your MBD live show tickets here! https://www.tinyurl.com/MBD-HOLIDAY  Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here:⁠ ⁠⁠https://www.swap.fm/l/mbd-note⁠⁠⁠  Watch Morning Brew Daily Here:⁠ ⁠⁠https://www.youtube.com/@MorningBrewDailyShow⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Many employees can't afford a hefty medical bill that pops up out of the blue, but it happens. And employees who are financially stressed are, understandably, more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, AFLAC plans help with out-of-pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more at aflac.com slash morningbrue daily. That's aflack.com slash morning brew daily. Good morning brew daily show. I'm Neil Fryman.

And I'm Toby Howell. Today, a Fed president takes us in the room where it happens. Then the Jim Bros are coming for your pastries. Protein Pop-Tarts are now a thing. It's Thursday, October 16th. Let's ride. Good morning. Today's show is going to be a little different, but in an exciting way.

Yesterday, we spoke to Chicago Fed President Austin Gouldsby in this studio. Thank you for your questions, by the way. And while going in, we expected to use that interview for a part of the show. The conversation was so interesting. We kept the tape running and are going to bring you about 20 minutes of Austin, then wrap it up with some final news headlines, of course. A couple of things stood out to me about this interview, Neil. First, Austin does not scream Fed official.

His dream job was actually doing voiceovers for car commercials. Second, he's a data dog through and through. And I tell you what, the dog is hungry amidst the data blackout due to the government shutdown. And finally, it was so cool talking to a voter on the central bank's interest rate setting committee. Just wait until he talks about the. size of the table they all sit around. One of our favorite interviews so far, so we hope you all enjoy. And now a word from our sponsor, Remarkable. Toby, would you say you're an organized person? You've seen my home. Yeah, it's a nightmare. That's why you got to get the Remarkable Paper Pro.

You can fit a practically unlimited number of notes and documents on this third generation paper tablet, all organized into folders, tagged, and searchable so you can find what you need in seconds. It's a central location for all of your most important work. Templates like checklists and day planners help you stay organized. This latest edition features the all-new canvas color display, built-in reading light, and class-leading responsiveness. It's thin, minimalist, and designed to feel and sound just like writing on actual paper. But you can also turn your handwriting into type text, use the reading light to work anytime, and structure your work with dozens of built-in templates. And most importantly, Remarkable's mission is about helping you think better. That means no

apps, social media, or any other distractions, just you and your thoughts. Whether you're in a meeting or deep in a creative session, this paper tablet helps you think better. You can try Remarkable Paper Pro for 100 days for free. If it's not what you're looking for, get your money back. Visit Remarkable.com to learn more and get your paper tablet today. That's remarkable.com. And now, here's Austin. Austin Gouldsby, thanks so much for being with us. Yeah, what a treat. Thank you for having me. This is going to be great. So it's Wednesday morning. You're a Federal Reserve official. You be waste deep in the monthly inflation report that was supposed to be released today. But instead,

you're here with us because the consumer price index was delayed from the government shutdown. And that is a problem because you and other Fed leaders are huddling up in two weeks to make an interest rate decision that will determine the fate of the economy. How is this data blackout impacting your ability to do your job? Do you have the information you need? It's a mess. I mean, we always have to make a decision with imperfect information. But there's imperfect and then there's imperfect. If you don't have the information, it just adds more question marks, makes it harder to see. And what is it like for you not having data at your fingertips? Because I remember you called yourself once a data dog. Yeah, and I'm one of many. It's frustrated.

I was trying not giving your dog food for the whole day and see how the dog reacts. That's exactly how I feel. And what did you mean by this? You said the first rule of the data dogs is there's a time for walking and a time for sniffing and knowing the difference between those. What is the difference between those? What do you mean? What is the difference? Look, that's the, when you come to the FOMC meeting and it's deciding among the hardest things the central bank has to do is figure out when the transition moments are and try to get the timing right. And that's what that first rule of the data dogs is sometimes sniff for more information and sometimes you have the information. it's time to start walking.

The second rule of the data dogs is sniff every piece of data that hits the floor because it might be food. And times like this where either A, you can't get the data or B, even before there was a shutdown and they stopped sending the data, big tent poll important numbers like the monthly payroll jobs number have a bunch of question marks because A, the survey response rates have gone down so we get bigger revisions now and there's more corrections. And a bunch of other things are happening, like immigration policies changing. So the population growth is smaller.

You got the baby boom in the heart of their retirement and the speed at which that happens is going to affect the monthly payroll number. So go sniff everything. If it's actually a turning point, you should see it in a lot of different series. And so far, you're not. Well, talk to me about some of those other pieces of food laying on the ground. I'm thinking about the ADP private payroll providers report. Where are you looking if you can't necessarily,

if you don't have the government data or if it's not necessarily as reliable as it once was? What I would encourage everyone to look at if you're into this sort of thing, and I feel bad for you. If you're one of us and you're into this sort of thing, that says something about you. But if you are, just be careful with raw numbers, okay? aggregate numbers, including the ADP, we saw in 2023 and 2024, were not accurate indicators

of business cycle. You'll remember, there were people saying when we were getting these big jobs numbers, 180,000 a month, in 23, over 200,000 a month, there were people saying, you can't be this high that's so far above the break-even point, we must be about to reignite inflation. But it didn't. inflation didn't reignite. It kept coming down over that whole period. So the answer to your question of what to look at, I encourage you to look at rates. So 23 and 24, the unemployment rate, the vacancy rate, the hiring rate, the layoff rate, those were the four horsemen of the truth. They gave you a much better indicator where we were in the business cycle. They're a little bit of a mixed picture now. Some of them are worrying. The hiring rate is very low. You see that in the data,

And you see that in college graduates and new entrance to the workforce. Everyone complaining it's really hard to find a job. But the layoff rate is also really low. And it's just worth noting that's unusual. Usually if the hiring rate is low, they start laying people off. And that's the sign that you're going into a recession. Now the hiring rate looks like recession. The layoff rate looks like boom.

And now they're not giving us the data. So it's definitely frustrated. It's tough. How much of the labor market weakness, especially in the entry-level sphere, do you attribute to AI? Is there any way of knowing? I mean, that's, you know, another confounding variable here that we have artificial intelligence sweeping the country and the globe. How much do you think it's impacting the labor market? I don't think a ton on a sector-by-sector basis. The fact that the unemployment rate of computer science graduates went from being the lowest of all the majors

to now among the highest of all the majors, there's probably something to that. But objectively, the unemployment rate of computer science graduates remains pretty low. The things that AI is replacing so far are nowhere near the majority of the job market, not even close. It's a edge case. So I don't think that the AI explains the hiring rate for the whole nation. Just holistically, one term we've used to describe this labor market is low, higher, low fire. Is that something that you would agree with? Is that two terms or one term? I guess it's a phrase. Yeah, I totally 100% agree with that phrase. Just look at the data. This low turnover is unusual. That's an unusual environment to be in. You know, before we got to this, everybody who said, ah, there's so much

uncertainty, it gives everyone pause. You would kind of think if you were running a business and there was a lot of uncertainty, you wouldn't want to get rid of the people you have. It's hard to bring them back, but you wouldn't be bringing on new people. You'd just be kind of waiting it out. So that might be contributing to that environment. So data dogs, they look at all types of data, like qualitative data and quantitative data. And part of your job is talking to business leaders. You're the president of Chicago Fed in the Midwest. So what are you hearing from them as you go talk to business leaders across the Midwest? Running April 2nd, Liberation Day, they announced the tariffs. The district of the seventh district that Chicago

Fed is the base of is most of Iowa, Wisconsin, Illinois, Indiana, Michigan. It's like heart of the Midwest. We have the highest manufacturing intensity of all the districts and by far the highest autos. There was a ranking of all the states' tariff exposure and of the seven most exposed states to tariffs, four of the seven are in the seventh district because we got a lot of agriculture, we've got a lot of manufacturing. Their hair was absolutely on fire in April, freaking out. If the rates are going to be this big, we're going to die. What are we going to do? It exceeds our entire margin. They just did not know what was going to happen. Then we sign a couple of deals. we exempt USMCA compliant goods.

They kind of phase down the rates. And a lot of the businesses were less freaked out than they were in April. They said, it would probably be okay. Now we're coming back to the beginning where we're inching them back up. And as I always say, it's worth remembering, imported goods are only 11% of GDP in the U.S. So if it stays in its lane, it doesn't have to be a macro massive impact. But how it jumps out of its lane, one of the ways is if you start applying big tariffs to intermediate goods and parts and supplies and components and stuff like that.

Now you just transformed attacks on imported goods into a tax on domestic production. That's kind of started happening. We're going to up it on steel and aluminum. them, we're going to get in a bunch of retaliation on rare earth metals and magnets and things that go into the supply chain. It feels like a lot of business getting back nervous again. And normally, if you're trying to figure out, where are you in the business cycle, you would kind of go look at the rate sensitive sectors and say, hey, if restrictive

interest rates set by the Fed are driving slowdown, then the people who are most interest rate sensitive, they will probably be suffering the most. Kind of the three big ones are business investment, consumer durables, and housing construction. Or those are three of the most rate sensitive. Business investment is booming. Now, that's probably because of this AI and the data centers

and stuff that has nothing to do with the interest rate. Okay, so that one's confusing, but it doesn't look like trouble. Consumer durable, surprisingly resilient. And so one of the things that when we're out talking to the auto companies, there was a bunch of front running of the tariffs, and they thought then it was going to drop off, but it kind of hasn't dropped off. Consumer spending, as you know, is just kept chugging along,

and then housing construction's been weak. So of the three rates sensitive ones, two of them don't look like there's much trouble, and one looks like there is some trouble. So again, it's a little confusing. You got a tough job. There's a lot of variables there. Shifting gears a little bit. One of the other big storylines of this year has been about the pressure.

The administration has put on the Fed from going after Lisa Cook to calling on Jerome Powell to step down. Fed independence has long been kind of the bedrock of the U.S. financial system. Why hasn't the market reacted more to some of these threats? You got to tell me why the market reacts the way it does to all kind of stuff. I've been in the Fed a little, it's going to be three years in January. Before I was ever at the Fed, I agreed with the virtually unanimous of all economists that you will ever talk to, that central bank independence from political meddling and interference when setting the interest rate is extremely important.

Every rich country of the world has that feature, and a lot of poor countries of the world do not have that feature. And that's not a coincidence. The unanimity of economists in favor of central bank independence from meddling is rooted in just look at the places where they don't have it or times even in this country where they don't have it. Inflation comes roaring back. And it's easy to understand why if the sitting government can set it. the interest rate, they have incentives that are different than trying to prevent inflation from getting out of control. We're going to take a quick break and come back with more Austin right after this.

So a lot of people listening to this hear us talk about the Fed meeting. You know, it happens a couple times every year and you all vote on an interest rate decision to make other economic forecasts. But it seems like such a black box to all of us. So if you could, I would love to, for you just to paint a picture of in two weeks. of what it is. Yeah, what is it? I had never been there.

Okay, but you guys, I'm like you. I'm an econ nerd. My whole life, I got to tell you, it's about the coolest thing in the entire world. You go in, there's giant room, a huge table. Biggest table I've ever seen. Everybody sits around this table. Shades come down. There's nobody can spy.

You can't bring in a phone. You can't bring in. it's like being back in the situation room or something in the White House. And first day is about the economy. Second day is about the rates and the vote. Jay Pals and be like, here's what I think about the economy. And Governor Waller, he's going to say, here's what I think about the economy. And they're going to go around the table.

And you can see the background of the people sitting around the tables very different. Business people, economists, lawyers, markets. people, there's a bunch, and it's fascinating. It's really fun to hear their view of the economy. I try to bring a little, I don't know, a little regional taunting to the things. So I'll usually start by, here's why the 7th District is the greatest district in the nation. Eventually, you'll be able to see word for word. They were released not just the minutes, but the actual transcript of what everyone said. And you'll see it is a little formal, but it's extremely, people take the job extremely seriously. Everybody speaks their piece, whether you're voting

that meeting or not voting. It's all about the economy, the economic outlook and what do they is how they see the world. It's not about elections. It's not about politics, not about outside pressures. Everybody takes that job really seriously. I say in this, in 21st century, I think that's the world's greatest deliberative body. You can judge for yourself. People are very thoughtful. How does the actual voting mechanic work? We were kind of joking that everyone puts their head down and put their thumbs up. Yeah, no, I should see if we can innovate that. What happens is on Rates Day, everybody gives their opinion, and then they call the question, there will be, they will have outlined three alternatives. Alternative A, B, and C. And they're loosely kind of a doveish alternative,

a hawkish alternative, and then the alternative B, which is what we vote on. And they just call out whoever are the voters. They'll be like, Governor Bowman. And they say, yes or no. President Gouldsby, yes or no, President Daly. And they call out the 12, and that's the mechanic. And if somebody dissents, they'll just say no. And then I think there's some process of giving a rationale if you dissent. Have they been more tense recently? Because there has been sort of disagreements between the Fed officials about whether how much we should cut rates, whether we should not cut rates at all. There was a double dissent a few meetings ago. So has that translated to maybe some more tense meetings recently than in your three years in this position?

Listen, the vibe of the room is not tense. It's a, like I say, but people are there, have historically taken the job extremely seriously, and it's all about content. And if people disagree, I mean, you can see just from the public comments that the, that the members of the, of the committee make, they're coming from very different places. You know, there are different worldviews, but Chair Powell has been very good at, is it diplomacy? And kind of navigating a course that almost everybody can agree with almost all the time. And that's pretty, it's pretty impressive in an environment where we've had a lot of major things happen to be able to do that.

I haven't detected it to be, to be tense. And what's he like as a leader? Like, is he someone who's more vocal, or is he just, you just kind of understand where he's coming from? Is he very data-driven? I have found him very data-driven. I didn't know him that well before I got to the FMC. I've been really impressed. I mean, I said, I thought he's a first Ballot Hall of Fame Fed Chair.

And I have pretty high standards. I was, Paul Volker was my friend at mentor, and I worked through the financial crisis in 2008, 2009 with him. I'm not the rules of the FOMC communications policy. I'm only supposed to speak for myself on monetary matters, not for the Fed, not for anybody else or what they think. But I'll just say, the guy's very easy. I found him very smart and persuasive. And he's had excellent intuition at several points along the way here.

It seems like a Tim Duncan kind of guy. Yeah, just big fundamental. Would you agree? The big fundamental. The big fundamental. I grew up a Lakers fan, so I can't praise somebody that much for being a Tim Duncan-like character. Speaking of Fed communication, Fed officials have to be very careful with their wording because what they say or even hint at has the power to move trillions of dollars in markets.

So you're forced to adopt this Fed speak where you say something, but not really. Do they teach you how to speak Fed before you join? No, I'll probably get myself in trouble anyway. But it can be overblown a little bit, especially the closer the argument gets to, well, the Fed needs to do X because that's what the market expects and you can't disappoint the market from their expectations. Volker used to tell me, the Fed's job is to act. The market's job is to react. And let's not get the order mixed up. And I kind of agree with that.

I'm usually trying to just say, here's what I think. and I'm just one of 19 people sitting around the table so the world can make of that what it wants. Are the rumors true? Did you actually teach a class at UChicago on your wedding day in a full tuxedo? I did. It was a Saturday.

I had a Saturday glad they made me. They assigned me the class. It was really low. It was only my second year. It actually ended up working out okay because there wasn't that much for the groom to do on the morning of the wedding except just get nervous.

There's a picture of me teaching the thing. And I always say, you can tell who's the university Chicago people from not. A normal person looks at the picture and it's like, you're teaching class in a tuxedo and the Chicago people are like, that's the monopoly markup formula. Because that's what the, that's what the was like

the learner index, you know, formula. And we had a real class. On Saturday. Well, they say you Chicago's where fun goes to die, but I did go there for one. weekend and I had some of the best nights. It's where fun was born. It's where fun was born.

At least for the small group of people that I was hanging out with. So Austin, thanks so much for joining us. What a treat. Thank you for having. Learn so much. And good luck with everything in this date of blackout and we'll be following the rest of the Fed officials movements over the next few weeks. Great to see you.

Well, I never met someone as married to the game as Austin. I tell you what, I will not be potting in my tucks on my wedding day. you all enjoyed that interview as much as we did. Now let's sprint to the finish with some final headlines. Up first, big banks have clearly been hitting the gym because amidst all the uncertainty around tariffs and in the economy, they just keep getting swelor. Across earnings calls from JP Morgan, Bank of America, Goldman Sachs, Wells Fargo, and Citigroup, the through line was clear. We're doing all right. The investment banking divisions of Goldman had a great quarter because higher policy volatility can actually accelerate the sort of corporate wheel.

in dealing that earns it fees. City Group had a 16% increase in profit, as it said the spending habits of consumers is holding up strong. Morgan Stanley had an especially standout quarter thanks to its stock traders with revenue from that division jumping 35% to $4.1 billion, topping Goldman Sachs in the business

that it traditionally dominates. Finally, Wells Fargo reported a 9% boost in profit on the backs of increased spending among its most affluent clients and lower income customers. But two true, can coexist here. Quarterly profits can be strong as stock trading and dealmaking resurgence, but risks lights can also be blinking under the surface. Neil, some bank leaders are feeling

uncomfortable with, one, the sheer length of this bowl cycle, and two, some of the shenanigans going on in the private credit world where we've seen a couple of high profile collapses. I think I know what bank leaders you're talking about. And it's Jamie Diamond, JP Morgan, CEO, who's always ruffling some feathers. So the context here is we had two major blowups in the credit markets recently, two auto companies first brands and tricolor. And there's been a little bit of spookiness around whether this portends further collapses or some shakiness around capital markets. So Jamie Diamond, during J.P. Morgan's earnings call, goes up to the mic, goes up to the earnings call and says, my antenna goes up when things like that happen.

And by that, he's talking about these two big blowups. I probably shouldn't say this. But when you see one cockroach, there are probably more. And this mention of cockroaches within the financial system attributed to private equity companies, got a lot of pushback. And you saw asset managers and private equity giants from Apollo to Blackstone to other smaller companies, push back on Jamie Diamond's comment saying, look, you guys were involved in the deal too. I think you need to look at your own books and not ascribe blame to us if you want to squash more bugs. So Jamie Diamond always, you know, creating conversation.

He always has a pretty dour outlook compared to the rest of the big bank CEOs. But overall, besides the cockroach comment, the six largest banks ranked in almost $41 billion in profits in the past three months, which was up 19% from a year ago. They say that everything's pretty much smooth sailing on the economy besides perhaps a few cockroaches we need to kill. All right, over in the AI world, everyone is talking about Open AI's announcement on Tuesday to allow, quote, erotica for verified. adult chat GPT users, essentially meaning they can sext with the chat bot. People like Mark Cuban blasted the move, writing on X, this is going to backfire hard. No parent is going to trust that their kids can't get through your age gating. Sam Altman, OpenAI, CEO, responded on Wednesday that he was very surprised by the backlash, saying OpenAI is, quote, not the elected moral police

of the world and clarified the erotica point was just one example of the company being able to safely relax more content restrictions because it has the two. tools to verify ages. Altman said this is, quote, very much about the principle of treating adult users like adults. Yeah, the comparison he drew was how society handles R-rated movies. They're not banned. That content is not necessarily banned. They are just age restricted. And he's saying, we're doing the exact same thing here. We have the technology in place to verify users age. So we are not going to be this paternalistic figure and tell you how you can or cannot use his chat bot. Maybe he also sees what Elon Musk is doing with Grock and how it already allows.

explicit material and said maybe we want to be in line with that as well. He said it's not a growth hack. We're not doing this to get people addicted. We just don't want to be the moral police of the world. So we'll see how one, the technology actually performs and if it can effectively age gate because Mark Cuban is probably right, kids find a way. They know how to get around these types of things. And then we'll also see if it is actually something that is a free speech kind of path that he is taking or if it's something that he wants to have a stickier user base, which obviously, you know, explicit and erotica content can lead to stickier users. Finally, the proteinification of America shows no signs of letting up.

This week, Pop-Tarts maker Kelanova announced Pop-Tarts Protein, a new version of the product coming in November that will contain 10 grams of protein per serving and come in three flavors, brown sugar, cinnamon, strawberry, and blueberry. Don't worry, there will still be plenty of sugar. 30 grams per serving, about 60% of the recommended daily intake. This is by no means a suddenly healthy snack, but with demand for processed food slowing down dramatically, Pop-Tarts is hoping that infusing Jimbrough-approved protein into one of the more indulgent pantry staples will bring consumers back into the sprinkly frosted fold.

Other food giants are thinking along the same lines. Last week, Pepsi announced plans for a higher protein version of Doritos, containing about two grams per 11 chips. Companies are trying to not get flat-footed as the protein craze reaches new heights. According to Grandview Research, the global market for foods fortified with protein is expected to top $100 billion in the next five years, up from $67 billion in 2023. Toby, what in the world? Protein Pop-Tarts, protein Doritos.

Snackmakers want to have their cake and hope you eat it too. Yeah, I think this is the path forward for snack makers because as we are entering into a healthier era of snacking, the easiest way to keep the brands that people love but make them not feel as bad about it is just injecting little. I did see my timeline light up with some people loving this rollout because as a runner, this is a great thing because I used to eat pop darts before almost every single run. Now if you add a little protein, you feel even better about doing it yourselves. They're not the only ones doing it either.

You mentioned Doritos, but also Smuckers just released a high protein version of Uncrustibles. That I am very excited for. That's got 12 grams of protein. So we're seeing a little war breakout here. Even, you know, Chloe Kardashian rolled out her own protein popcorn with a, a little bit of protein in that as well. So clearly this is the playbook that these brands are running. I also think about Starbucks adding its protein cold film.

Basically, you just add protein to everything these days. It begs the question, are we entering a protein bubble? And I have been hearing some inklings of that. So what is the thing just around the corner? Fiber might be the next thing where we see everyone re-injecting their foods with that. So the snack cycle just continues to turn. Right now we're in our protein era. maybe the next era is fiber.

That is all the time we have. Thanks for starting your morning with us. Have a wonderful Thursday. If you missed Neil's numbers today, so did I, got bumped by the Fed. But we'll do a special Friday edition tomorrow. If you have any feedback on today's episode, send a note to Morning Brew Daily at morningbrewd.com.

Let's roll the credits. Emily Milliron is our executive producer. Raymond Lou is our producer, our associate producers are Olivia Graham and Olivia Lake. Hair and makeup is protein maxing. Devin Emery is our president and our show. is a production of Morning Brew. Great, show today, Neil.

Let's run it back tomorrow.