Fed's Goolsbee Adjusts Rate-Cutting Path Amid Policy Uncertainty

On Friday, Austan Goolsbee, President of the Chicago Federal Reserve, announced a change in his expectations regarding rate cuts, projecting a shallower decline in rates for 2025 than he had anticipated before. Despite this adjustment, Goolsbee maintains his perspective that the U.S. central bank's policy rate will still decrease by a "judicious amount" in the upcoming year.

During an interview with CNBC, Goolsbee expressed that the current uncertainty surrounding federal policy makes it challenging to estimate the neutral interest rate as well as the prevailing inflation rate. He remarked, "The uncertainty about policy makes it particularly hard to make estimates of what the neutral rate is and what the inflation rate is in particular." This ambiguity contributes to his more conservative stance regarding the expected rate cuts for 2025.

Goolsbee highlighted that inflation appears to be on track to reach the Federal Reserve's target of 2%. He noted that with the current policy rate significantly exceeding its eventual intended level, which is around 3%, it will be essential for the Fed to reduce inflation substantially over the next 12 to 18 months.

Previously, Goolsbee indicated that he believed rates should decline by 100 basis points next year, in line with a consensus among some policymakers. However, recent projections released following the Fed's decision to cut its benchmark policy rate by a quarter of a percentage point to a range of 4.25%-4.50% suggest that most central bankers now foresee a reduction of only 50 basis points in the coming year.

Fed, Goolsbee, rates