At the speaking engagement where he said it would be fine for the Federal Reserve to lower interest rates sooner rather than later, Chicago Fed president Austan Goolsbee took a moment to get philosophical about the state of America’s vibes. Of course, he spent much of the talk going on about a bunch of hard numbers like the rates of unemployment and inflation. But when he got asked about people who are upset that the cost of living is going up even though price gains are slowing, he got qualitative.
“We do think about vibes, because historically the vibes — consumer sentiment and business sentiment — have been good predictors of consumer spending and business investment,” he said. “So we always paid attention to that.”
And what is the consumer part of that calculus saying?
Things are great.
The Michigan Consumer Sentiment survey came in at a 79.6 reading for February, up a tad from January’s 79.0 and the highest it’s been since the summer of 2021. That’s when the rapid spread of the delta variant of COVID-19 threatened to renew all the pandemic-era anxieties that had been quieted by widespread vaccine adoption.
Vibe mileage may vary
Even if Americans are feeling great, and GDP numbers are looking good, there are storm clouds on the horizon. China’s economy seems to be hitting some headwinds, and both the United Kingdom and Japan have entered recessions.
Whether those effects will spill over into the U.S. remains to be seen.
“The only thing I’ll observe is that the predictive power of those variables has degraded substantially over time,” Goolsbee said, still referring to the vibes. “There are a lot of people now who say they think the economy is bad, and they’re spending a lot. In the old days, you said you thought the economy was bad you stopped spending. So its predictive power has made us less attuned to it.”
Besides, he insisted, the main thing the Fed pays attention is its dual mandate to achieve stable inflation and full employment.
When those numbers start looking bad, that’s when we should start feeling bad.