Taming Inflation Without A Recession Would Be A 'Major Triumph,' Says Fed's Goolsbee

In a day marked by a chorus of voices from the Federal Reserve at the prestigious Jackson Hole Symposium, a wide range of opinions echoed through the financial corridors.

As Fed Chair Jerome Powell struck a more hawkish tone, indicating the readiness to further hike rates if circumstances dictate, divergent sentiments emerged from other Fed officials. Philadelphia Fed President Patrick Harker‘s message exuded caution, leaning towards a preference for maintaining the status quo on interest rates.

In an interview with Bloomberg TV, Chicago Fed President Austan Goolsbee underlined his dovish stance, aligning his views with those who remain hesitant about aggressive tightening measures.

Goolsbee emphasized the ongoing unfinished work of the Fed, remarking that “inflation is still higher than we want it to be.” Expressing a guarded optimism, he mused about the rare scenario where the Fed could conquer inflation without an accompanying recession, describing it as a potential “major triumph” with no historical precedent.

Also Read: Fed’s Loretta Mester Says ‘We Only Get A Trophy’ If Inflation Hits 2%

Challenges Loom, From Auto Strikes To Housing Market Adjustments

Goolsbee’s concern extended beyond monetary policy. He voiced apprehensions about the looming specter of supply chain disruptions and the potential impact of a significant auto strike. With the Chicago district deeply intertwined with the automotive sector, Goolsbee worried that a “prolonged strike will have a material impact on the manufacturing economy.”

Responding to whether the Fed destroyed the housing market for the current generation, Goolsbee replied, "I hope not". He acknowledged the consequences of rapid rate hikes, which have dampened both supply and demand in the housing sector. While he refrained from asserting the Fed’s culpability for the situation, he conceded that it would take time for the housing market to “adjust.”

In a landscape fraught with a “confusing cloud”, Goolsbee remained vigilant about the risk of a hard landing. He remarked that bringing back a 2% inflation rate without triggering a recession is virtually unprecedented, highlighting the complexities at play.

Focus On The ‘Real’ Rather Than The ‘Nominal’ Interest Rate

Goolsbee emphasized the importance of data-driven decision-making, suggesting that the real rate – which subtracts the inflation from the nominal interest rate – remains a pivotal gauge for measuring the intensity of monetary tightening.

The dovish view of the Chicago Fed President emerged when he said that holding nominal interest rates at 5.5%, as inflation goes down, is implicit to more tightening.

The barrage of statements from Fed officials prompted a favorable response from the stock market, leading to a 0.8% increase in the SPDR S&P 500 ETF Trust SPY.

Now Read: 2024 Election Betting Odds: Biden Gains, DeSantis Drops, Ramaswamy Climbs — A Look At Who’s Favored After Republican Debate

Photo: Shutterstock and Fortune Brainstorm TECH on flickr