The president of the Chicago Federal Reserve said the U.S. central bank needs to “do more sniffing” on the economy and inflation before determining whether to resume raising interest rates.
“I have not decided what should be the rate decision more than a month from now,” Austan Goolsbee said in an interview with The Wall Street Journal.
The Fed skipped an increase in interest rates last week after 10 straight hikes since March 2022. Senior officials want more time to assess how much the economy is softening and whether inflation would continue to ease.
Rate hikes take time to slow the economy and the effects are always readily apparent, Goolsbee noted. He called the Fed decision to pause rate hikes a “close call.”
Still, the central bank’s official economic forecast also signaled two more increases this year. Fed Chairman Jerome Powell on Wednesday reiterated rates are likely to go even higher in a congressional hearing.
Asked if the Fed would learn all it needed to know about inflation in the next six weeks, Goolsbee said: “Probably not.”
The central bank has rapidly lifted a key short-term rate to a top end of 5.25% from near zero less than a year and a half ago. Higher borrowing costs tend to slow consumer spending and business investment, the two biggest pillars of the economy.
Yet senior Fed officials also worry about going too far — “overshooting” in central bank lingo — and triggering a recession.
Goolsbee said he hoped to gain more clarity on inflation and the economy before the Fed’s next big meeting on July 25-26. He noted the labor market was still quite strong and consumer spending was relatively robust.
” I am a data dog. We need to do more sniffing,” said Goolsbee, contending he’s neither hawk nor dove on inflation. Those terms are used used to describe central bankers who are viewed as either more or less aggressive in fighting inflation with higher rates.
Goolsbee is a voting member this year of the Fed’s interest-rate setting panel, known as the Federal Open Market Committee.
Chicago Federal Reserve Bank President Austan Goolsbee said on Wednesday that the U.S. central bank needs more clarity on inflation and the labor market's trajectory before deciding on its next step.
"I feel like the Fed's framework is, 'wait and see,'" Goolsbee told the WSJ Global Food Forum in Chicago. "If you don't see progress, that is an answer, if you do see progress, that is also an answer."
Goolsbee joined other Fed policymakers last week in a unanimous vote to leave interest rates at their current 5.00%-5.25% range, a decision which he said felt like a close call to him personally.
"We're in this weird foggy environment where it's hard to figure out where the road is, and I felt like a reconnaissance mission is a perfectly appropriate thing to do" after 10 straight interest-rate increases, Goolsbee said. "You know that it takes some time for that to work its way through the economy, and just trying to figure out whether we've done enough, how much more needs to be done."
Over the next couple of months, he said, the Fed should get a better read from the data that will shape its next decision, one that he said he has not yet made up his mind on.
The biggest puzzle, he said, is not why services inflation is persistent - that was expected, he said - or even about when housing inflation will decline - likely by the fall, he said - but rather why goods inflation has not more quickly returned to its zero or negative pre-pandemic readings.
The Federal Reserve’s decision to hold interest rates steady last week was a “close call” as central bank officials try to figure out whether they’ve tightened enough to bring inflation down, Chicago Fed President Austan Goolsbee said.
“For me, it still was a close call,” Goolsbee said Wednesday at a forum in Chicago.
“I felt like a reconnaissance mission is a perfectly appropriate thing to do after you’ve had 10 raises in a row, among the fastest increases in interest rates in recent memory,” Goolsbee said. “You know that it takes some time for that to work its way through the economy.”
The Fed last week paused a series of interest-rate hikes to assess the impact of monetary tightening on the economy after raising rates at each of its last 10 policy meetings. Officials also signaled they envisioned two more quarter-point rate hikes at some point this year in response to persistent inflation and job-market strength.
Goolsbee, who took office in January, has voiced more concern about tightening financial conditions than many of his colleagues following the collapse of four US lenders in recent months. The Fed has raised its benchmark rate by five percentage points since March 2022 in a bid to cool inflation, which last year reached a four-decade high.
The consumer price index last week showed price pressures continued to recede, though core inflation, which excludes food and energy, continued to rise at a pace that Fed officials find concerning. Employers also kept hiring at a rapid clip in May while job openings climbed in April, recent data showed.
Goolsbee’s comments at the Wall Street Journal Global Food Forum followed remarks from Fed Chair Jerome Powell, who told the House Financial Services Committee earlier on Wednesday that policymakers think it may make sense to keep raising rates in the coming months.