(Bloomberg) — Federal Reserve Bank of Chicago President Austan Goolsbee said officials should consider cutting interest rates as inflation falls to avoid keeping policy too tight, though he stressed the central bank will make decisions meeting-by-meeting.
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“If we continue to make surprising progress faster than was forecast on inflation, then we have to take that into account in determining the level of restrictiveness,” Goolsbee said Friday in an interview on CNBC. As inflation comes down, “we would clearly be evaluating the responsiveness.”
The Chicago Fed chief, who does not vote on policy decisions this year, didn’t comment directly on the timing of the central bank’s first rate cut. But he echoed comments made by some of his colleagues, suggesting that if price pressures ease faster than anticipated, policymakers can lower borrowing costs to ensure that real interest rates — adjusted for inflation — don’t keep rising.
Policymakers left interest rates unchanged at their December meeting, in a range of 5.25% to 5.5%. It was the third straight meeting without a rate increase and none of the 19 officials projected another hike in this cycle. Markets interpreted the meeting last month as a pivot in Fed policy and now see about a 50% chance of a rate cut as early as March.
Goolsbee emphasized there are still weeks worth of data between now and then, and he encouraged market participants to watch economic data — not comments from policymakers — to assess the path of interest rates.
“It’s fundamentally about the data and what will enable us to become less restricted is if we have clear evidence that we’re on a path to get to the 2% target,” Goolsbee said.
He pointed to the Fed’s preferred inflation gauge, the personal consumption expenditures price index, specifically. The December figures will be released next week. He also noted that if the Fed isn’t able to fully cool inflation, policymakers will need to think about rate hikes again.
Atlanta Fed President Raphael Bostic also emphasized the role of data in his decision-making process in an interview on Fox Business on Friday. While Bostic reiterated his view that the central bank will begin cutting interest rates in the third quarter, he indicated he’d be open to changing his outlook if inflation were to come down faster than he expects.
“I’d be open to changing that outlook and my view about when we need to start cutting rates,” said Bostic. But he added that he wants “to make sure that we are well on our way to 2% before we move off of our restrictive stance.”
Goolsbee said last week that financial markets had likely gotten ahead of policymakers in assuming an aggressive path of rate cuts this year. Investors are anticipating six cuts in 2024 but several central bank officials have tried to push back against those expectations. Policymakers penciled in three rate cuts in the projections released after their December gathering.
The Chicago Fed chief Friday underscored the progress made on inflation over the past year, reiterating the US economy is still on a “golden path” to achieving its inflation mandate without spurring recession.
Goolsbee spoke just hours before the Fed’s traditional pre-meeting communications blackout period. The Fed is expected to keep rates unchanged again when they convene Jan. 30-31.
–With assistance from Steve Matthews.
(Adds comments from Atlanta Fed President Raphael Bostic starting in the eighth paragraph.)
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