Chicago Fed President Austan Goolsbee emphasized on Thursday that the Federal Reserve is committed to reducing inflation and aims to achieve this goal without plunging the economy into a recession. He highlighted the importance of not excessively raising interest rates in this effort.
Goolsbee stated during a speech at the Peterson Institute for International Economics that the Fed is dedicated to bringing inflation down to its target levels. He noted that inflation has already decreased significantly, currently at a rate of 2.4% on a three-month annualized basis according to the consumer price index. He pointed out that with supply chain issues resolving and demand stabilizing, the Fed has the opportunity to combat inflation without harming economic growth.
He cautioned against overemphasizing short-term wage growth as a predictor of inflation, as tying interest rate decisions to this factor during a transitional period could lead to overshooting. He also highlighted various risks, including oil price spikes, China's economic slowdown, extended auto strikes, and potential disruptive government shutdowns, that could affect the Fed's approach.
Additionally, Goolsbee stressed that altering the inflation target to a value higher than 2% would undermine the Fed's credibility and its ability to manage expectations and actual inflation effectively.
Looking forward, Goolsbee mentioned that he is closely monitoring housing inflation, productivity, and inflation expectations to guide core inflation back to its target. He stated that if housing inflation increases, the Fed might need to implement additional monetary policy measures.
The Fed currently plans to raise rates once more this year to a range of 5.5%-5.75% and then maintain rates at that level for an extended period. The current rates stand between 5.25%-5.5%. The Fed has already executed 11 rate hikes since March 2022 in a robust campaign reminiscent of the 1980s, though inflation remains around 4%, double the Fed's inflation target.
Source: by Jennifer Schonberger at finance.yahoo