Fed's Goolsbee Expects Interest Rates To Fall With Inflation, Says 'Golden Path' Is Possible

Chicago Fed President Austin Goolsbee highlighted the potential for a “golden path” ahead as inflation trends downward, paving the way for the Federal Reserve to consider lowering interest rates.

What Happened: “Inflation has come down a lot,” Goolsbee said in a Friday, Jan. 19 interview with CNBC.

Significant progress was made in 2023 toward achieving the dual mandate of the Federal Reserve, he added, citing how maximum employment and inflation converged toward their target levels.

“That’s the thing that everybody should be watching for — the rate path,” he stated. This reduction in inflation is a crucial indicator of the Fed’s decision-making process.

Goolsbee stressed that the key to determining the timing and extent of interest rate cuts lies in the data. “It’s fundamentally all about the data, we don’t want to pre-commit to rate cuts, before the job is done,” the Fed official stated.

Goolsbee emphasized that the Federal Open Market Committee (FOMC) operates on a meeting-by-meeting basis to maintain flexibility in responding to evolving economic conditions.

Goolsbee emphasized his dovish stance when addressing the issue of real policy restrictiveness. He emphasized that as inflation continues to decline, it creates opportunities for nominal rate cuts, as he prefers looking at the real interest rate weighing on the economy.

Housing

Goolsbee noted, “[Housing inflation] should come down.”

The Chicago Fed President foresees a better ground of growth and inflation outlook for U.S. the economy, stating that the job market has come to a better balance.

Markets are currently assigning a 52% probability of a rate cut in March, and are factoring in a total of 142 basis points of cuts by December 2024, according to CME Group Fed Watch tool.

Goolsbee won’t be a Federal Reserve Open Market Committee (FOMC)’s voting member in 2024.

2024 FOMC Voting Members	Designation
Jerome Powell	Chair
John Williams	Vice Chair, NY Fed
Michael Barr	Board of Governors
Michelle Bowman	Board of Governors
Lisa Cook	Board of Governors
Philip Jefferson	Board of Governors
Adriana Kugler	Board of Governors
Christopher Waller	Board of Governors
Loretta Mester	Cleveland Fed
Thomas Barkin	Richmond Fed
Raphael Bostic	Atlanta Fed
Mary Daly	San Francisco Fed
Rotating Out
Austan Goolsbee	Chicago Fed
Patrick Harker	Philadelphia Fed
Neel Kashkari	Minneapolis Fed
Lorie Logan	Dallas Fed

Read Now: Strong Data Dampens Rate Cut Expectations, Lifts Dollar And Spurs Treasury Yields: Thursday’s Economic Digest

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