Federal Reserve Bank of Chicago President Austan Goolsbee indicated that current labor market and inflation trends support the Federal Reserve easing interest rates both soon and steadily over the next year.
This statement, made in an exclusive interview with Market Watch on Thursday, reflects Goolsbee’s assessment of recent economic data.
Goolsbee observed that inflation is decreasing significantly, while the unemployment rate is rising faster than Fed officials had anticipated in June.
“The long arc shows inflation is coming down very significantly, and the unemployment rate is rising faster,” Goolsbee stated.
He highlighted that the favorable inflation data combined with the less favorable unemployment figures suggest not only imminent rate cuts but potentially multiple reductions over the next 12 months, as outlined in the Fed’s latest projections. Goolsbee also noted emerging warning signs regarding the cooling labor market, which has been weakening more than expected.
The Labor Department’s upcoming August jobs report is expected to provide further insights into these economic trends. Goolsbee emphasized, however, that decisions should not be based on a single month’s data.
“I don’t want us to be basing decisions on one data point,” he remarked.
The Federal Reserve has maintained its benchmark interest rate in the range of 5.25%-5.5% for over a year. During this period, inflation has decreased, but the current policy is at its most restrictive level since the tightening cycle began in early 2022. Goolsbee warned that maintaining high rates for too long could negatively impact the labor market, which has seen the unemployment rate rise to 4.3% in July, surpassing the Fed’s median forecast of 4.2%.
Despite these challenges, Goolsbee expressed confidence that inflation is moving towards the Fed’s 2% target and that a soft landing—a scenario where inflation cools without triggering a recession—is still possible. He acknowledged, however, that the economic outlook remains complex, with recent Fed surveys indicating mixed growth across regions.
Fed Chairman Jerome Powell recently indicated that the central bank is prepared to cut rates, and financial markets are currently speculating on the scale of the expected reduction. The Federal Reserve’s next policy meeting is scheduled for September 17-18, with many economists anticipating a 25-basis-point cut, though some believe a weaker jobs report could prompt a larger 50-basis-point reduction.
Market Watch, Morningstar, and FX Street contributed to this report.
