GEOFF BENNETT: The latest jobs report shows the labor market is definitely cooling off.

The U.S. added 142,000 new jobs last month and the unemployment rate dipped slightly to 4.2 percent.

Overall, the report was better than July, but with revisions and other data coming out this week, it shows a job market that is notably cooler than this past winter.

All of this is being closely watched as the Fed prepares to cut rates later this month.

Austan Goolsbee is the president of the Federal Reserve Bank of Chicago.

Welcome back to the "News Hour."

AUSTAN GOOLSBEE, President, Federal Reserve Bank of Chicago: Thank you so much for having me.

GEOFF BENNETT: So what's clear from the data is that the job market is slowing down.

What's your overall read of this report and what it says about the strength of the U.S. economy?

AUSTAN GOOLSBEE: The issue that we have been grappling with for a little bit now is the job market is cooling, but it was started from a level that was probably too hot.

So what we need is to get it stabilized at a steady state full employment kind of a level.

And there's a couple of warning signs here that as the job markets keep cooling and if we get more months that are below what we expected like this month or they revised what were already disappointing months in the previous two months downward, the more we see that, the more nervous we might want to be on what's happening in the -- on the state of the economy.

GEOFF BENNETT: So how aggressive should the Fed be when it comes to cutting rates at this meeting that's scheduled for later this month?

AUSTAN GOOLSBEE: You know the rules.

I'm not allowed to speak for anybody else on the committee, only for myself.

I think we set a high interest rate more than a year ago and we have been sitting there with this high rate this whole time, and the conditions more than a year ago when we set it were very different than they are today.

The inflation rate is something like half what it was back then, and we set it that high to try to get rid of inflation.

And the job market has cooled significantly.

My expectation is, what's appropriate is multiple rate cuts over the next several meetings, and that, if you look out over the year, you only want to be this tight as a Central Bank if you're afraid that the economy is overheating.

And this isn't what overheating looks like.

If anything, it's overcooling.

GEOFF BENNETT: There are some economists, some of whom we have spoken to on this program, who say that the Fed is behind the curve, that rate cuts at this point won't help the economy in time and that any rate cuts need to be significantly larger.

Where are you on that?

AUSTAN GOOLSBEE: I think the hardest thing for a Central Bank ever is to figure out exactly the timing.

So what we're trying to determine is, are we behind the curve?

Are we on the curve?

What is to come?

It's not just a backward-looking thing.

And we don't -- we don't ChatGPT-style say, well, if the job market number is X, then that means Y at the next meeting.

But I think we have got to take seriously the idea that if you look at the long arc of the data, it's pretty clear what's happened.

Inflation has come way down.

The job market has cooled.

And if we do not start moving with -- if we start moving apace at getting the getting the rates back to something like normal, we're going to increasingly have problems on the real side of the economy.

GEOFF BENNETT: Well, a question about one aspect of that long arc of the data, to use your phrase.

If you look at the job revisions downward, over the last three months, we have been creating an average of about 115,000 jobs a month.

And that's down quite a bit from last winter.

Are you confident that we're not sliding too much and heading into a possible recession?

AUSTAN GOOLSBEE: That's the fear.

I would express -- I don't express confidence about predictions.

The job of central banker is to worry about everything, but that's the primary worry, is that with the slowing of the job creation and the rise of the unemployment rate, that it won't stabilize at something like where it is now.

If everything stopped and the unemployment rate was 4.2 percent and we had 150,000 jobs a month, and that just continued, that would be fine.

That would be kind of a steady state full employment type rate that people have expected.

The great fear is that it just keeps cooling and it gets worse.

And that's what we got to try to guard against.

GEOFF BENNETT: I want to also ask you about the commercial real estate sector, because there are questions about whether the problems in that sector might spread.

There are some analysts who believe that office buildings are never going to recover to their pre-pandemic levels and that you will have banks and investors eating the losses, hundreds of billions of dollars potentially.

How do you see that?

AUSTAN GOOLSBEE: Look, the office sector has been troubled.

It is no question.

You go to the downtowns of a lot of big cities and the vacancy rates are higher than what they were pre-pandemic, for sure.

Part of that's got to be sorted out.

How much are people going to work from home, work from hybrid?

What are going to be the demands for space?

The important thing over '23 -- after Silicon Valley Bank collapsed, there was a fear that that -- the office real estate issue was going to come to a head and be a real credit crunch on the banking sector.

That largely didn't happen.

I think it's a safe - - safety and soundness supervision is a core function of the Fed.

And the bank examiners are on top of these issues.

And the -- that's not separate from what happens to the rates.

If the rates are coming down, it makes it easier to refinance buildings to incur whatever losses have to be incurred and to get on with it.

So we will just have to see how those play out in the context of the rates.

GEOFF BENNETT: Austan Goolsbee is president of the Federal Reserve Bank of Chicago.

Thanks for being with us.

AUSTAN GOOLSBEE: Thank you.