What tells us a donut about the state of the economy?
The president of the Federal Reserve of Chicago, Austan Goolsbee, thought of that Wednesday while traveling through Mel-O-Cream donuts in Springfield, Illinois.
Even within a donor store, you can see the effects of tariffs on the economy. “It is surprising, because donuts look like a very local product and yet they get some ingredients such as palm oil that come from Indonesia,” Goolsbee said. The Trump administration established tariffs in Indonesia at 19%.
“Now they have to find out what are the rates of rates, and the tariffs increased a significant amount. If that happens, that could have an impact of thousands of dollars on their operation,” he continued. But, he added: “I hope it is not a sign of something more widespread or broader in the way in which Covid inflation … generated its own snowball, in which it was supposed to disappear and did not disappear.”
That rate will cost Chris Larson, co-owner of Mel-O-Cream, “about $ 4,000 per shipment per week,” he said. And that used to be in a place “closer from $ 2,000 to $ 2,100 weekly. Now it will move up to $ 4,200 … for exactly the same product.”
Goolsbee’s visit is important because it is one of the 12 people in the country who will decide what to do with interest rates. The Fed Rate Fixing Committee will decide below whether to cut or maintain on September 17, and the prospects of companies such as Mel-O-Cream are fundamental to help you determine your next vote.
Larson’s hope? That the Fed reduces interest rates, which would help Mel-O-Cream to finance new equipment to reduce labor costs and mitigate the impact of tariffs.
“What is the cost of money to expand, update, update? How are those things?” Larson said. “Those things concern us, and we would love to see, as everyone would, interest rates would decrease.”
Goolsbee said he was not yet ready to tie his hands to an interest rate cut in September.
“We obtain a few months of data before arriving at conclusions. The most difficult thing that the Fed has to do is get the moment in the transition moments,” he said Wednesday in the “Here The Scoop” podcast of NBC News. “I think that as we spend this fall, September, November, December, all those are live moments that we could be reducing rates.”
Government data showed Thursday that wholesale prices paid by American companies increased much more than expected. Another measure, the consumer price index, showed on Tuesday that inflation remained stubbornly high in July.
The objective of the Fed for inflation is 2%, lower than the most recent consumer inflation reading of 2.7%and the reading inflation of the producer of 3.3%. Even with those numbers, the market still anticipates a cut next month.
The radical tariffs of President Donald Trump in hundreds of commercial partners worldwide could affect the cost of most imports that companies buy abroad. With a large number of rates as high as 50%, companies can face a new maze of tariff rates and invoices, as well as the uncertainty that comes with the launch of rates at the time and again.
“It is assumed that the Fed, by law, maximizes employment and stabilizes prices. Therefore, it is inflation and employment that really are the twin towers of how we think of the establishment of rates,” Goolsbee said, underlining the role of the Federal Reserve in the broader economy.
“There are parts of the labor market where there is still labor shortages. It is very difficult for people to find workers. And that is what you saw here in the donut factory,” he said.
Goolsbee supervises the seventh district of the Federal Reserve, which includes Iowa, much of Illinois, Indiana, Michigan and Wisconsin.
Some of his colleagues, including Jeffrey Schmid, from Kansas City’s Fed; Alberto Musalem, from the Fed of St. Louis; And Beth Hammack, from Cleveland’s Fed, sounds equally cautious tones about the economy. The three current voters of the Federal Open Market Committee have said in recent days that it is too early to decide or to keep the stable rates for now would be their preference.
The futures market predicts that the Fed will reduce by 0.25% at its next meeting. But some, including Treasure Secretary, Scott Besent, think that the Fed should make a more dramatic cut, up to a half point.
Musalem said Wednesday in CNBC that a cut that would be “not supported by the current state of the economy.”
Amid Trump’s relentless attacks and its administration against FOMC and President Jerome Powell, Goolsbee, who was the economic advisor of President Barack Obama, said that economic indicators should boost the formulation of monetary policies, not politics.
“FOMC and my own thought are that what should promote the decisions of the interest rate should be economic conditions and economic perspectives,” he said. “I invite anyone to look at the minutes or read the FOMC transcripts: people in that body are taken extremely seriously that it is the economy that should boost decisions. And that is what drives decisions.”
“This is a committee composed of people from many different perspectives. And as I say, they follow up on the word, what everyone says in meetings. And you can see it yourself.”
