(Yahoo! Finance) - Chicago Fed president Austan Goolsbee said Tuesday he’s focused on bringing inflation back down before cutting interest rates any further.
“I remain optimistic that there can be more rate cuts this year. But that hinges on seeing actual progress on inflation that shows we are on a path back to 2%,” Goolsbee said in a speech at the National Association for Business Economists Conference.
Goolsbee emphasized that he thinks the Fed could make “several more cuts” by the end of the year if inflation drops, but that “front-loading too many rate cuts” is “not prudent” when expectations for a decline in inflation keep getting pushed back.
Inflation based on the Fed’s preferred inflation gauge — the Personal Consumption Expenditures Index — remained at 3% in December on a “core” basis, which excludes volatile food and energy prices.
“With inflation at 3%, it is not obvious that our interest rate policy is even restrictive,” said Goolsbee.
He said the Fed’s benchmark policy rate — the fed funds rate — adjusted for inflation is close to or even slightly below the central bank’s estimate of neutral, a level designed to neither boost nor slow economic growth.
Goolsbee said he is watching different components of inflation, notably in goods where tariffs have driven up prices. He said multiple studies have found that the US has absorbed the bulk of the cost of tariffs, though it is not yet known precisely how much has found its way downstream to consumers and how much more is on the way.
“If you keep seeing (inflation) pushing off when it's supposed to be peak on goods inflation, that's not a good sign,” he said.
Services inflation (excluding housing) has also been running stubbornly high, he noted, at 3.3% over the past year.
“That’s very unlikely to have come from tariffs, and it’s harder to make an optimistic case that high services inflation is just transitory. So we need to be vigilant,” he said.
He views the job market as stable, though he noted that low hiring with low firing is indicative of uncertainty. With the Supreme Court’s decision to strike down President Trump’s tariffs enacted under emergency economic powers, he expects that dynamic to continue
“There's no evidence we're breaking out of it,” Goolsbee said. “If anything, we're getting new shocks that are emphasizing it more. It feels likely to me that we're going to continue to have low hiring with low firing precisely because I think the dynamic driving that is not the business cycle, it's the unpredictability.”
That said, Goolsbee said that if the high court’s decision leads to lower tariff rates, we could see inflation relief faster.
By Jennifer Schonberger - Senior Reporter
