Goolsbee Predicts More Rate Cuts for a Soft Landing

(Reuters) – Federal Reserve Bank of Chicago President Austan Goolsbee on Monday said he expects “many more rate cuts over the next year” as the U.S. central bank seeks a soft landing for the economy, where it controls inflation without crashing the labor market.

Goolsbee noted that inflation is “way down” from its peak and recently has been aligning with the Fed’s 2% target, in remarks prepared for the National Association of State Treasurers Annual Conference.

He mentioned that the 4.2% U.S. unemployment rate is considered to be full employment by many, which aligns with the Fed’s other mandated goal.

“Basically, we would love to freeze both sides of the Fed’s dual mandate right here,” Goolsbee commented. He acknowledged that rates are currently at their highest in decades. Holding rates steady is logical for cooling the economy, not for maintaining the status quo.

Last week, the Fed reduced its policy rate to the 4.75%-5.00% range, including a larger-than-usual half-of-a-percentage point cut.

“I am comfortable with a starting move like this—the 50 basis point cut in the federal funds rate announced last Wednesday—as a demarcation that we are back to thinking more about both sides of the mandate,” Goolsbee stated. “If we want a soft landing, we can’t be behind the curve.”

As Fed policymakers have gained confidence that inflation will return to 2%, Goolsbee suggested it is appropriate to consider risks to employment, not just inflation, implying that many more rate cuts may be on the horizon.

Goolsbee has advocated for reducing the Fed’s policy rate for months, despite the central bank holding it steady for over a year even while inflation dropped substantially.

“The specific timing of the initial cut is less important than the longer-arc view that conditions are good on both sides of the mandate,” he concluded. “Rates need to come down significantly going forward if we want the conditions to stay that way.”