Fed's Goolsbee: Slow Approach to Rate Cuts Amid Tariffs, Immigration Policy Uncertainty
Chicago Fed President Austan Goolsbee believes the Federal Reserve can continue lowering interest rates as the U.S. economy operates at full employment with declining inflation. However, uncertainties surrounding the impact of tariffs and other policy changes warrant a more gradual approach.
"We have reached full employment and inflation is improving," Goolsbee said, indicating that rates may fall further if conditions persist.
Despite headline inflation remaining slightly elevated above the Fed's target of 2%, Goolsbee attributed this to a "base effect" from last year's inflation surge that is expected to fade. He highlighted underlying inflation measures that suggest easing price pressures.
However, the imposition of tariffs and other policies by the Trump administration remains a wildcard that could affect the economic outlook. While the Fed considers these developments, Goolsbee advocates for a cautious stance.
"As we approach a 'neutral rate' and potential end to rate cuts, it makes sense to slow down amid increased policy uncertainty," he said. "The ultimate destination for rates is likely lower than current levels, but the pace of the decline will be more gradual."
The Fed recently kept its benchmark rate unchanged after cutting a full percentage point during the last quarter of 2024.