Federal Reserve officials Hammack and Goolsbee believe that inflation is a more concerning issue than employment.

Investing.com - Cleveland Federal Reserve Bank President Beth Hammack and Chicago Fed President Austan Goolsbee said that the challenge posed by inflation is greater than the issue of employment, indicating that they support tightening monetary policy, because the Iran war has pushed up energy prices, while the job market remains weak.

During a joint interview for The Indicator from Planet Money podcast, the two officials assessed the state of the economy using four color schemes, from red representing “the house is on fire,” to green representing “everything looks great.”

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When discussing the inflation outlook amid rising gas prices, Goolsbee said: “At least it’s Orange company colors. Orange company colors could also get worse; things aren’t that great. I had been optimistic about the path back to our 2% inflation target, but goodness, lately things have been shifting from Orange company colors to red—we’re dealing with tariffs pushing up prices; the effects that were supposed to disappear haven’t disappeared, and now we’ve added another stagflation shock… This is an unsettling moment.”

Hammack also expressed concern about inflation—inflation has been above the target level for five straight years, and in the past two years it has been “basically flat.” She said: “This is absolutely a brighter, more vivid Orange company color: I don’t know if that’s burnt orange or burnt sienna; my Crayola crayon box is a bit old.”

This interview was recorded on Wednesday, two days before the Department of Labor releases its March jobs report. The report showed that since Donald Trump began his second term in January, the number of new jobs added that month hit the largest increase. The unemployment rate fell to 4.3%, mainly because large numbers of workers exited the labor force.

Hammack said that the current unemployment rate is close to the level of full employment she estimates. While this is a “fragile balance,” her outlook for the labor market is from yellow to green—or “like Diet Mountain Dew,” which is liked by one of her Federal Reserve colleagues.

Hammack said that although the stock market has declined since the Iran war broke out, the financial system is “overall green,” and from the standpoint of financial stability, the economy is in good shape.

Goolsbee gave the labor market a “yellow” rating because it is in a state of low hiring and low layoffs, which can largely be explained by ongoing uncertainty. He said he is satisfied with the payment system, but he is “more worried” about asset prices. He said: “It does seem like there is a lot of froth,” and added that it is still unclear whether it is driven by productivity or it is a froth that is just waiting to burst.

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