In an interview with CNBC on Friday, Federal Reserve Bank of Chicago President Austan Goolsbee indicated a potential path for future monetary policy. He stated that if the current economic landscape remains stable with no signs of renewed inflationary pressures and full employment persists, the Federal Reserve should consider lowering interest rates.
Goolsbee emphasized that he would not express dissatisfaction with the creation of 250,000 jobs. He cautioned against overemphasizing individual job reports, stating that it would be necessary to analyze whether recent retail gains were indicative of a strong holiday season or a broader economic trend.
He asserted that the job market was not a primary driver of inflation, noting that current wage growth was consistent with 2% inflation when considering productivity levels. He described the job market as stable and operating at full employment.
Goolsbee acknowledged that the recent rise in long-term interest rates could not be fully explained by anticipated inflation. He suggested that a portion of this increase could be attributed to expectations of higher economic growth and a slower pace of interest rate cuts by the Federal Reserve.
He pointed out that the inflation rate over the past six months had been 1.9% and expressed confidence that interest rates would be significantly lower 12 to 18 months from now if current economic expectations were realized.
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Goolsbee acknowledged the need for the Fed to consider factors such as tariffs and other nations’ responses, which could impact prices. He emphasized the importance of determining whether the impact of tariffs on prices would be temporary or persistent. He stated that the Fed would need to assess how any concrete policy proposals would affect its dual mandate goals of price stability and full employment.
He explained that the current high annual inflation figures primarily reflected the increase observed earlier in the year and cautioned against dismissing the recent progress made in combating inflation. He noted that the persistence of inflation at present could be attributed to the significant jump in prices a year ago.
Goolsbee acknowledged that interest-sensitive sectors of the economy had experienced the effects of the Fed’s restrictive monetary policy, although these effects might be partially offset by factors such as strong business confidence. He concluded that he had not observed any evidence of an overheating economy in recent months. He expressed concern that a rise in long-term interest rates driven by escalating inflation expectations would present a significant challenge.
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