Goolsbee Optimistic On Rates
The Chicago Fed President, Austan Goolsbee, has expressed optimism that US inflation is now firmly on a downward trajectory, which he believes potentially paves the way for the Fed to lower interest rates. However, he did warn that there were some likely potholes along the way. Goolsbee stated, "Over the past seven months core PCE inflation has been running at the Fed’s 2% target or even below. Rate cuts should be tied to confidence in being on a path towards the target. I don’t support waiting until inflation on a 12-month basis has already achieved 2% to begin to cut rates", adding, “Even if inflation comes in a bit higher for a few months, as many forecasts suggest, it would still be consistent with our path back to target."
Despite an unexpectedly high CPI numbers for January, Goolsbee was optimistic that inflation would continue falling. One reason was falling shelter costs, which saw a significant increase in January, and accounts for about a third of the CPI number. "Over the past few months, the deceleration in housing services inflation has not been as fast as expected. That is at odds with market data on rents for new leases, so I expect improvements to resume. Still, that puzzle got bigger with the Consumer Price Index data, and it is something I am watching," he said.
He underscored the Fed's focus on the PCE inflation measure over the CPI, stating, "They can differ somewhat significantly in some important aspects, especially in regard to some of the components that have behaved strangely as of late, like housing and other services. So, we will need to see what those PCE data show." Goolsbee also mentioned the current restrictive nature of Fed policy, with the real federal funds rate being "as high as it has been in decades," and warned about the implications of maintaining this stance for too long on unemployment, given the rate has stabilised at 3.7% for the last three months.
Furthermore, Goolsbee argues that advancements in supply chains and productivity growth are enabling the economy to support stronger growth without leading to significant inflationary pressures, suggesting a balanced approach to navigating the economic landscape ahead.
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