Austan Goolsbee

Look, it's rare and it's horrible.

And especially if you're the central bank, let's just give a 30 seconds, you know it, but permit me 30 seconds to say, why does central banking work in economics?

They call it the divine coincidence.

The most cyclical industries in the economy, construction, business,

big durable goods manufacturing business investment also tend to be the most interest rate sensitive parts of the economy.

So if you have a normal business cycle and things are overheating, the Fed, by tightening the interest rate, we kind of have like a volume knob and we can make it quiet and we can make it soft.

But it works because of the divine coincidence that the cyclical industries are also interest rate sensitive.

So if we control the interest rate, if it looks like they're getting too hot, we raise the interest rate a little, we kind of pull them back down, and that stabilizes the business cycle.

That's basically the idea.

So then what do you do if they both start going, both sides of the dual mandate, which the law says we're supposed to stabilize prices and maximize employment, and that's it.

That's what our monetary policy is supposed to be.

That's the Fed focus.

Well, what do you do if they both start going wrong?

Because now the divine coincidence doesn't work.

If you loosen the rates when inflation is high, inflation might go up, but you're losing the rates because unemployment is high.

It's a catch-22.

So now you got a trade-off.

So it's the worst.

For the central bank, it's the worst situation you can be in, or among the worst.

I mean, a financial crisis is even worse than that.