Chicago Fed President Goolsbee's Recipe For 'Right Monetary Policy' During Financial Stress — Caution, Watchfulness, Prudence

Federal Reserve Bank of Chicago President Austan Goolsbee believes during moments of financial stress, the right monetary policy is to maintain caution, watchfulness and prudence.

What Happened: "And I don’t say that because I think we should stop prioritizing the fight against inflation just because markets got upset. That is a perspective that I call financial dominance which holds that financial issues are more important and they should dominate monetary policy concerns when they conflict. There are people who believe that, who believe that those financial conditions should drive Fed action. But I absolutely don’t," he said on Tuesday, according to a video tweeted by Bloomberg TV.

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Major Wall Street indices closed mixed on Tuesday as investors and traders remained cautious ahead of the release of the consumer price inflation data on Wednesday. The SPDR S&P 500 ETF Trust SPY closed 0.03% higher while the Invesco QQQ Trust Series 1 QQQ lost 0.64%.

On Rate Hikes: Amidst the caution ahead of the release of inflation data on Wednesday, Goolsbee's comments on the need to remain watchful about aggressively raising rates provided some relief to market participants.

"Given how much uncertainty abounds when these financial headwinds are going, I think we need to be cautious. We should gather further data and we should be extra careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting inflation down," Goolsbee said.

According to CME FedWatch Tool, market participants are factoring-in a probability of over 67% for a 25 basis points rate hike during the Fed's next policy meet.

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