Chicago Fed President Austan Goolsby said Monday that three interest rate cuts in 2024 are “consistent with my thinking,” and that inflation has declined despite higher-than-expected readings in January and February. He said the basic story has not changed.
“It seems hard to believe that the last seven months to the beginning of this year were just a coincidence,” Goolsby told Yahoo Finance LIVE in an exclusive interview.
“We're in a situation of uncertainty, but I don't think we've fundamentally changed the story of achieving our goals.”
Mr. Goolsby's comments echoed those made by Fed Chairman Jay Powell last week, after the central bank kept interest rates on hold and maintained its outlook for three rate cuts this year. Officials also raised their expectations for inflation and economic growth.
The decision to maintain a policy of three interest rate cuts this year (the same number expected in December) was based on the belief that the persistence of inflation data would prompt authorities to reduce the number of rate cuts in 2024. It was received and carried out.
Core consumer prices based on the Consumer Price Index rose at an annual rate of 3.8% in February, following an annual increase of 3.9% in January. These numbers are down from last year's levels of around 5.5%, but still nearly double the Fed's 2% inflation target.
But the central consumer spending index, the Fed's preferred inflation measure, showed better progress on the inflation front, rising 2.8% in January after rising 2.9% in December.
For Goolsby, the main mystery of why inflation hasn't completely come down has to do with housing. He believes progress has been made on rents, but the overall data doesn't yet show that.
“We need to bring housing inflation closer to pre-pandemic levels,” he said.
Markets remain confident that the central bank will begin its first rate cut in June, but Goolsby won't commit to that date.
Asked if a rate cut in June was still on the table, he said: “Everything is always on the table or off the table.”
At last week's meeting of the Fed's Federal Open Market Committee, nine officials gave new estimates, saying they believe the Fed will need to cut interest rates three times this year. Five officials believed two cuts were necessary.
Goolsby said Monday that the median estimate of three job cuts was “in line with my thinking this time.”
Not all Fed officials are on the same page about the number of rate cuts this year.
Atlanta Fed President Rafael Bostic said Friday that he currently expects only one rate cut this year, and that he believes the rate cuts will occur later this year than previously expected, as the economy holds up. He emphasized that the Fed can afford to be patient.
Goolsby said Fed officials need to balance the central bank's dual responsibilities of price stability and employment. Until now, the bigger focus has been on controlling inflation.
“At this level of restrictions, if we continue, we're going to have to start paying attention to the other side of the mandate, and I've seen Chairman Powell discuss the employment side of the mandate as well in his press conference,” he said. There is,” he said. He said.
Regarding a strong job market and consumers, Goolsby classified consumer spending as “mixed,” noting that questions of continued strength have been colored by increased immigration over the past year following the pandemic.
He believes that increased immigration will support increased consumer spending and economic growth.
“The recalculation on immigration is a bit confusing to our outlook on how much consumer spending and how many jobs we can sustain at a given rate of inflation,” he said.
“There is no question that that will lead to an increase in aggregate GDP, which will lead to an increase in aggregate consumption.”
Goolsby also said he supports the Fed's plan to slow its balance sheet shrinkage, a little-known policy tool it uses to tighten financial conditions.
The FOMC did not make a final decision at its meeting in Washington, D.C., last week, but Powell said it would be appropriate to start slowing the economy “fairly soon.”
“As we get closer to the point where we have enough reserves, we want to get to a steady state trajectory a little bit more slowly,” Goldsby said.
He believes slowing balance sheet drains is in a different direction than cutting interest rates. Asked if he would cut interest rates before slowing the pace of shrinking the balance sheet, he said: “That depends.”
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