(Bloomberg) -- On a hot, sunny afternoon in early June, Austan Goolsbee traded a desk in his bookshelf-lined office at the Federal Reserve Bank of Chicago for a cramped brick booth on a small island in the middle of the Mississippi River.
On the border of Illinois and Iowa, with a black lever in each hand, Goolsbee carefully closed two miter gates at Locks and Dam 15, allowing a chemical barge to sail on to the next part of the river. He was there to tour the facility and meet with local business leaders and farmers, hoping to gain a better understanding of how his region’s economy — the most exposed to tariffs among the Fed’s 12 districts — is coping with the Trump administration’s ever-changing trade policies.
“Official data, it comes out with a month or a quarter lag, so another major component of data sources that we monitor at the Chicago Fed is coming out to talk to people,” Goolsbee said at an event in Davenport, Iowa, on June 2, before the dam tour. “We go out to try to get information in real time, especially at moments of transition.”
And this is a moment of transition.
Trips like this are a mainstay for Fed officials, especially for the heads of its regional reserve banks. Goolsbee tries to visit all five states in his midwestern district at least once a year -- a patch that includes the manufacturing core of Michigan, all of Iowa and parts of the farming-heavy states of Wisconsin, Illinois and Indiana. But on-the-ground insights have become especially valuable over the last few months as uncertainty about trade and other policies cloud the outlook for growth, employment and inflation.
What Goolsbee heard and saw while on the Mississippi and at events in Davenport and Cedar Rapids, Iowa, will help inform his decision-making at the Fed’s June 17-18 meeting and at future gatherings. And what he’s hearing recently — both from the early June trip and from another he took in May to Michigan — has been unexpected.
“It’s been a little surprising that we haven’t heard more on the ground, ‘This is devastating us, our costs are higher,’” Goolsbee said in an interview with Bloomberg News in Cedar Rapids on June 3.
The Chicago Fed chief had expected tariffs to quickly drive up inflation, and perhaps for a sustained period. Economic theory suggests a one-off levy on imports would have just a temporary impact on price movements, but Goolsbee and others worried a broader trade war that included reciprocal tariffs on US exports could have a longer-term impact on inflation. It’s still early to make any conclusions, but so far that hasn’t materialized.
Price data for the year through April showed inflation kept cooling, with the Fed’s favorite measure just above the central bank's 2% target at 2.1%. But anecdotal evidence from around the country shows businesses are still expecting prices to jump soon, according to the Fed’s Beige Book, a compilation of economic information from firms and other contacts throughout the 12 districts released June 4.
The picture of a steady economy in data so far, coupled with mounting concerns about what’s coming, has led Fed officials to keep interest rates on hold this year. Investors expect them to stand pat again at the June meeting. Many have dubbed this a “wait and see” approach, but Goolsbee has a penchant for calling it the “data dog” strategy — in which he “sniffs” out as many data sources as possible to see what’s going on. The anecdotal evidence doesn’t always pan out, but it can be an important early indicator of what’s to come.
After his tour of the locks and dam, Goolsbee met with a group of locals. Farmers noted that while the major tariff announcement on April 2 didn’t affect the current season’s crops -- as they were already in the ground -- they’ll need to order for next year’s harvest in a month or two.
“Grease is cheaper than steel”
That, along with pressure on farm income over the last few years as crop prices cratered, has them worried about profitability. Brent Johnson, president of the Iowa Farm Bureau and a farmer himself, noted that instead of buying new equipment, farmers are opting to fix what they already have because “grease is cheaper than steel.” President Donald Trump this week boosted steel tariffs to 50% from 25%.
The protracted trade war with China could also have particularly dire repercussions for this part of the country. Illinois and Iowa are by far the biggest growers of soybeans, the highest-value US bulk agricultural export, and last year China accounted for roughly half of the $24.6 billion in exports of the commodity.
“Exports are not our savior,” Mark Stutsman, the chief operating officer at Eldon C. Stutsman Inc., a Hills, Iowa-based supplier of agricultural equipment and services, said at an event in Cedar Rapids on June 3. “We need to find ways to grow domestic demand.”
One of Goolsbee’s biggest concerns around tariffs has been a fear that they could scramble supply chains, leading to longer-lasting pressure on prices, just the way the pandemic disrupted global trade and ignited years of high inflation.
“My read so far is that it hasn’t been that, and everybody is kind of keeping their fingers crossed that we don’t get that,” he said.
Beyond anxiety about future prices, some of the businesses Goolsbee spoke with were still hiring and sometimes having difficulty finding the talent they need. The chief executive of University of Iowa Health Care expressed concern about finding enough doctors and nurses to staff his hospitals. Caitlin Russell, president of commercial construction firm Russell, said her sector is increasingly dependent on foreign-born workers. Some 40% of the construction workforce is expected to retire by 2030, she said. And that’s happening just as Trump’s policies are severely discouraging immigration.
If the economy can dodge another bout with inflation or economic weakness from tariffs and other policies, Goolsbee believes the Fed can get back to cutting interest rates, like it did in late 2024 when it lowered its benchmark by a full percentage point over four months.
“As we get evidence that says the economy looks more like where it looked before April 2 — stable, full employment with inflation trending down to the 2% target — to me that looks like a path where rates settle down more,” Goolsbee said.
In March, before Trump’s sweeping tariff announcements, most Fed officials expected they’d cut rates at least twice before the end of the year, followed by at least another two next year. Those projections could get reined in when policymakers release a new set of forecasts this month. But Goolsbee thinks the March projections might yet prove accurate, and his latest trips around the district reinforced that belief.
From what he heard in early June, lower rates would bring relief to eastern Iowa. Nearly everywhere Goolsbee went, he was urged to cut interest rates.
Jim Tansey, president of Hawkeye Commercial Real Estate, put it plainly: “Lower interest rates, in my world, are always welcome.”