Chicago Federal Reserve President Austan Ghoolsby expressed caution on Tuesday about lowering interest rates as the US economy tackles slower growth forces and weaker labor markets.
He joined the rest of the Federal Open Market Committee in a vote last week to cut the central bank’s key borrowing rates, but told CNBC that further moves will depend on economic progress.
“It’s okay to move to a better place. Ultimately, if we can get this stag dust out into the air, I think at a slower pace we’ll be able to get a lot of money down,” he said in an interview with Scokebox. “But I think we need to be a little careful about getting really moving forward and offensive as inflation has risen beyond our target for four and a half years in a row.”
FOMC voted 11-1 to lower the federal funding rate to the 4%-4.25% range, making its first easing of the year. Committee members are concerned about the impact of tariffs on prices. Inflation has surpassed the Fed’s 2% target, but the pace of price increases has been modestly accelerated since tariffs went online in April.
Much of the Fed’s calculus depends on finding a “neutral” rate that does not boost or limit growth. The forecasts released after the meeting show that the committee believes the neutrality level is consistent with a funding rate of around 3.1%.
This means reducing the benchmark rate to another percentage point. This shows that there will be two more cuts this year.
“I think the neutral interest rate is somewhere we are where we are,” he said. “If you’re on the road back to where you’re supposed to revert inflation and go back to where you promise to bring it, I think the fees will be reduced a few times.”
Inflation numbers are closely monitored, but so is the labor market. Recent trends show substantial softening of employment, although the unemployment rate of 4.3% is low in historical terms.
The Chicago Fed on Tuesday introduced its own labour market monitor, including unemployment forecasts and other real-time labor statistics. District data shows that unemployment rates remain the same in September.
Goolsbee said the report will occur from 11 different datasets that calculate unemployment forecasts, estimates of layoffs and other segregation, and estimates of unemployed employment rates. So far, the data has shown “a lot of stability” in the labor market, he said.
