Economy

Fed’s Goolsbee Predicts ‘Many More’ Rate Cuts Ahead According to Reuters

Federal Reserve Bank of Chicago President Austan Goolsbee commented on Monday that he anticipates “many more rate cuts over the next year” as the U.S. central bank aims for a soft landing in the economy, balancing the need to control inflation while avoiding a downturn in the labor market.

Goolsbee noted that inflation has decreased significantly from its peak and has recently aligned with the Federal Reserve’s 2% target. He also mentioned that the current U.S. unemployment rate of 4.2% is regarded by many as representative of full employment, which aligns with another key goal of the Fed.

“We would like to maintain both sides of the Fed’s dual mandate at this level,” Goolsbee emphasized. “However, interest rates are at their highest levels in decades. It makes sense to maintain these rates if the goal is to cool the economy, not to stabilize current conditions.”

The Fed recently lowered its policy rate to the range of 4.75%-5.00% in a move that included an unusual half-percentage point cut.

“I support this initial move—a 50 basis point cut in the federal funds rate—as indicative of our return to considering both aspects of our mandate,” Goolsbee stated. “To achieve a soft landing, we must not fall behind the curve.”

As Fed policymakers have grown more confident that inflation will stabilize at 2%, Goolsbee highlighted the importance of considering potential risks to employment alongside inflation concerns, suggesting that this may lead to further rate cuts in the coming year.

For some time, Goolsbee has been an advocate for reducing the Fed’s policy rate, which had remained steady for over a year despite significant drops in inflation.

“The timing of any initial cut is less critical than the overall perspective that conditions are favorable on both sides of the mandate,” he remarked. “To preserve the current conditions, interest rates will need to decrease substantially moving forward.”

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