(Bloomberg) -- Federal Reserve Bank of Chicago President Austan Goolsbee described the latest inflation data as “excellent,” adding the figures provided the evidence he’s been waiting for to be confident the central bank is on a path to its 2% goal.
Goolsbee declined to offer guidance on the timing of the first interest-rate cut. Still, he emphasized the importance of the deceleration in shelter inflation in recent months, calling it “profoundly encouraging.” The Chicago Fed chief has been closely watching that category to determine when the central bank should lower borrowing costs.
“The committee put out a statement saying, we would not anticipate cutting rates until we were more convinced we’re on a path to 2%,” Goolsbee said Thursday in a conversation with reporters. “My view is this is what the path to 2% looks like.”
Goolsbee’s comments follow a report earlier Thursday that showed a key gauge of consumer prices rose in June at the slowest pace since August 2021. The slowdown was partly driven by a long-awaited cooling in housing costs, a component Goolsbee has said will be key to achieving the Fed’s inflation goal.
Following the data, which showed disinflation across a variety of categories, investors all but cemented bets the Fed would cut rates at their September meeting. Policymakers will meet July 30-31.
Goolsbee, who will vote at the Fed’s meeting later this month as an alternate member of the Federal Open Market Committee, emphasized by not adjusting rates the central bank is effectively tightening policy.
“The reason to tighten in real terms would be if you thought the economy is overheating,” he said. “This is not, in my view, what an overheating economy looks like.”
Two other policymakers also spoke following the latest consumer price index data. San Francisco Fed President Mary Daly said given recent data on employment and inflation, some adjustment to interest rates will likely be warranted — though she stopped short of offering a specific timeline for cuts.
St. Louis Fed chief Alberto Musalem suggested he needed some more convincing to lower borrowing costs. Musalem said the CPI figures pointed to “encouraging further progress towards lower inflation,” but he’d like more evidence of easing price pressures.
Path Forward
While Goolsbee’s comments signal he’s ready for a rate cut soon, he suggested he probably wouldn’t dissent in favor of one at the July meeting should his fellow policymakers vote to hold rates unchanged.
Goolsbee said he is open to one rate cut followed by a pause or a series of reductions, underscoring the path of interest rates will depend on the inflation data.
Fed officials, spooked by higher-than-hoped inflation readings in the first quarter, have held rates steady at a more than two-decade high for a year.
A resumption in the disinflation trajectory that started last year, coupled with a cooling in the labor market, may largely provide the evidence officials sought to be convinced that price growth is on track toward their 2% goal.
Fed Chair Jerome Powell told members of Congress earlier this week that he believes inflation is receding, but isn’t yet confident that it’s sustainably slowing to the central bank’s 2% target. He did, however, indicate officials are growing more cognizant of the potential impact of high borrowing costs on the job market.
The unemployment rate, while still low at 4.1%, has risen in each of the last three months.
Goolsbee said the job market is still “quite solid,” though the fact the unemployment rate has moved up from 3.4% is concerning.
Labor market data don’t indicate the economy’s on the precipice of a recession, “so you don’t have to panic,” Goolsbee said.
--With assistance from Steve Matthews.
(Adds comments from Daly and Musalem beginning in eighth paragraph.)
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