Austan Goolsbee 1.1 9 ideas

Goolsbee highlights that the Chicago Fed District (a hub for auto production) is "very amped up" about USMCA renegotiations and tariffs on "parts, components, supplies." The auto industry relies on a global/North American supply chain. Goolsbee explicitly states that CEOs are pausing hiring because "we don't know what the rules of the road are going to be." Uncertainty regarding tariffs freezes capital expenditure and complicates pricing models for legacy automakers. Avoid the sector until trade policy (USMCA/Tariffs) is clarified. A sudden, favorable resolution to trade talks could spark a relief rally.

Goolsbee states, "I'm pretty optimistic that we can get rates down further, multiple cuts in 2026," but simultaneously admits, "I'm a little more concerned about inflation right now." The bond market is pricing in cuts based on a cooling economy, but Goolsbee is warning that inflation is sticking at 3% and the "goalpost" for hitting 2% keeps moving to 2026. If inflation ticks up due to tariffs (even if transitory), the Fed cannot cut as aggressively as the market hopes. Neutral/Watch. The "optimism" for cuts supports bonds, but the "concern" for inflation caps the upside. Inflation re-accelerating forces the Fed to hold rates higher for longer, crushing long-duration bond holders.

Goolsbee notes that while AI productivity is a long-term positive, in the short run, "data center investment demand [is] using up all of the HVAC... electrical equipment... computer chips." The Fed President is confirming a physical supply shock. The build-out phase of AI is inflationary for the hardware supply chain. While the Fed worries about the macro inflation this causes, it is a direct revenue boom for the companies supplying the physical constraints (chips, cooling, power). Long the "Pick and Shovel" providers for the AI build-out. Fed tightening specifically to combat this sector-led inflation.

Goolsbee states, "I still think there are several more rate cuts that can happen in 2026," provided inflation proves transitory. He defines the neutral rate target "loosely... around 3%." Current rates are restrictive relative to a 3% neutral target. If the Fed executes "several" cuts to normalize policy, yields on the curve must fall, pushing bond prices (TLT) higher. LONG. The destination is lower rates, even if the path is bumpy. Inflation remains "stalled out around 3%," forcing the Fed to hold rates higher for longer.

"Goods prices, which had been [low] inflation... jumped up... If you take out commodities by the percent tariff content... you see a pretty clear relationship... those goods where there were more tariffs have tended to have higher inflation." Goolsbee explicitly links recent price jumps to tariffs. If tariffs persist or expand (a known macro theme), the cost of goods and raw materials will rise. Commodities act as a hedge against this specific type of "cost-push" inflation. LONG. A hedge against the "warning signs" Goolsbee sees in goods inflation. The tariff impact proves to be a "one-time thing" as Goolsbee hopes, and deflationary pressures return.