Chicago Fed President Goolsbee: Lower Interest Rates Expected in Long Run
Austan Goolsbee, President of the Chicago Federal Reserve, anticipates lower interest rates over the next 12-18 months. Despite the recent solid jobs report, Goolsbee believes the Fed may remain on hold for now.
The January jobs report showed 143,000 jobs created, a lower-than-expected number. However, the unemployment rate decreased to 4.0% from 4.1%, and wages rose by 0.5%.
Goolsbee classifies the jobs report as "solid" and suggests a trend towards full employment. He expects the Fed funds rate to settle significantly below its current level in the long run.
Goolsbee acknowledges uncertainties surrounding the Trump administration's policies, which could impact the pace of rate reductions. Nonetheless, he maintains an optimistic outlook for the economy, pointing to stabilizing job growth, solid economic growth, and consistent wage growth with the Fed's 2% inflation target.
Goolsbee emphasizes the importance of distinguishing between transitory and permanent inflation, especially as Trump's tariffs may persist. He expresses concern about the potential for an escalating trade war and its impact on the supply chain.
Despite trade uncertainty, Goolsbee believes the job market is stabilizing, and underlying economic indicators are positive. He predicts that interest rates will not reach neutral levels by the end of this year but will likely do so over the next few years.
as inflation subsides, Goolsbee expects commensurate interest rate cuts. However, he acknowledges the uncertainty surrounding the true neutral rate.