Federal Reserve Bank of Chicago President Austan Goolsbee suggests interest rate cuts could be on the horizon if US inflation continues its downward trend towards the 2% target.
Speaking Tuesday on Bloomberg TV in Sintra, Portugal, Goolsbee stated, “we are on a path to 2%” inflation and “if you just hold the rates where they are while inflation comes down, you are tightening — so you should do that by decision, not by default.”
Goolsbee’s remarks come on the heels of data showing a 0.1% increase in the Fed’s preferred inflation gauge in May, marking the slowest rise in six months.
Since last July, Fed officials have maintained rates at their highest levels in over two decades, awaiting stronger signs of inflation aligning with their 2% goal before easing borrowing costs.
“We reached this rate when inflation was above 4%. Now, with inflation close to 2.5%, holding the rate steady as inflation decreases is a form of tightening.
The need to tighten further arises only if we’re not on track to 2%,” said Goolsbee, who will vote as an alternate member of the Federal Open Market Committee in July.
Goolsbee highlighted that inflation appears to be stabilizing towards the target, despite a setback in January.
He cautioned that any signs of weakening employment or business slowdown must be weighed against inflation progress. “The unemployment rate is still quite low, but it has been rising,” he noted.
Fed Chair Jerome Powell echoed Goolsbee’s sentiments during a later panel discussion, acknowledging significant progress on inflation but emphasizing the need for more evidence before lowering rates.
“Because the US economy is strong and the labor market is strong, we have the ability to take our time and get this right,” Powell remarked at the European Central Bank Forum on Central Banking in Sintra.
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