Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, shared his insights in an interview on February 7. He expressed optimism regarding a potential drop in inflation and indicated that he views the job market as stable. He noted that if tariffs do not escalate inflationary pressures, there might be an opportunity to resume cuts to interest rates.
Goolsbee’s interview was polished for clarity and conciseness.
Regarding the current economic climate, he stated, “We are witnessing solid economic growth alongside a stable job market that is reflective of near full employment. While there have been occasional fluctuations, the broader picture reveals significant progress toward our inflation targets. It’s essential to be vigilant about potential overheating; however, at this moment, I don’t perceive any signs of that.” He further mentioned that beneath the existing uncertainties lies a robust economic foundation, waiting to be revealed once these uncertainties dissipate.
When discussing the previous year’s decision to cut the key rate by a full percentage point, Goolsbee emphasized, “We are now navigating a phase of uncertainty regarding our final destination. It seems prudent to gradually ease down the rates while carefully assessing where we ultimately stop. With additional uncertainties at play, I believe we need to wait until conditions stabilize to gain a clearer perspective.”
Goolsbee also weighed in on how the potential for new tariffs might influence inflation and the Fed’s approach to rate cuts. He stated, “Should we observe further inflation increases, it will be essential to differentiate between the factors causing overheating, which may have lasting impacts, versus temporary price spikes from tariffs. This distinction isn’t straightforward and will require time to unravel.” He recalled that during the 2018 tariff period, while there was an immediate impact on the prices of specific commodities, it did not significantly alter overall inflation rates.
He concluded by reiterating his fundamental view that if inflation does not experience an uptick, the economy seems to be stable with full employment levels. The expectation is for inflation rates to revert to the 2% target, which could potentially align with lower interest rates if inflation diminishes. Ultimately, he indicated that future decisions will be contingent upon the prevailing economic conditions, without providing a specific timeline regarding upcoming meetings for rate discussions.
