Chicago Fed president cautions against declaring victory on inflation too soon

In a recent appearance on CBS' "Face the Nation," Chicago Federal Reserve Bank President Austan Goolsbee stated that while progress has been made in taming inflation, it is still too early to declare victory. Goolsbee cautioned that the data will drive the decision on interest rates and emphasized the need to bring inflation down to the target rate of 2%. He mentioned some concerning economic data, such as an increase in homelessness and delinquencies in credit card debt, auto lending, and small business lending. Goolsbee also highlighted geopolitical risks, such as the war in Ukraine and the conflict between Hamas and Israel, which could impact the economy.

At the Federal Open Market Committee's (FOMC) recent policy meeting, the decision was made to leave the benchmark federal funds rate unchanged at a range of 5.25% to 5.5%. The FOMC's economic projections indicated that a majority of policymakers believe interest rates will decline to 4.6% by the end of 2024, suggesting at least three quarter-point rate cuts next year. Additional rate cuts are also penciled in for 2025 and 2026. However, none of the officials indicated that they see interest rates rising next year.

The FOMC acknowledged in a statement that while inflation has eased over the past year, it remains elevated. The committee stated that it will closely monitor the economy to determine if any additional rate hikes are necessary. Federal Reserve Chairman Jerome Powell explained that the word "any" was added to the statement to acknowledge that the peak rate for this cycle has likely been reached but also to keep the possibility of further hikes on the table.

Overall, Goolsbee's comments and the FOMC's decision reflect a cautious approach to managing inflation and interest rates. The focus is on bringing inflation down to the target rate and closely monitoring economic data and potential risks. The projections suggest a downward trend in interest rates over the coming years, but the possibility of further rate hikes has not been ruled out.


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