Fed May Pause Rate Hikes amid Economic Resilience, Says Chicago Fed President
Austan Goolsbee, President of the Chicago Federal Reserve, indicated that the central bank may temporarily halt rate hikes but anticipates a decline in interest rates over the next 12-18 months.
Despite a below-estimate 143,000 jobs created in January, Goolsbee characterized the employment report as "solid," noting the falling unemployment rate and wage growth. He believes the economy is approaching full employment.
However, Goolsbee emphasized the uncertainty surrounding the Trump administration's policies, including tariffs and tax cuts, as factors influencing the pace of future rate adjustments. He expects inflation to return to the Fed's 2% target, acknowledging that recent readings have been inflated by base effects.
The Fed's challenge lies in distinguishing between "transitory" and "permanent" inflation, particularly in light of potential tariff escalations. Goolsbee expressed concerns about a possible "foggier, dustier" environment if inflation rebounds amid policy uncertainty.
Despite trade war fears, Goolsbee cited discussions with auto industry players, indicating a potential disruption to the supply chain. However, he remains hopeful that trade will continue largely unimpeded, as witnessed in recent negotiations.
Beneath the trade uncertainty, Goolsbee notes a stable job market, solid economic growth, improving productivity, and wage growth consistent with 2% inflation. While he views interest rates settling significantly below current levels in the long run, he acknowledges the uncertainty surrounding the "truly neutral rate," which neither hinders nor stimulates economic expansion.
Goolsbee believes the Fed is unlikely to reach neutrality by year-end, estimating a timeline of several years. As inflation subsides, proportionate interest rate cuts may be implemented, he said.