Chicago Fed president calls for caution
Chicago Federal Reserve President Austan Goolsbee signaled that interest rate cuts should remain on hold until policymakers gain clearer evidence that inflation is moving decisively back toward the central bank’s 2% target.
Speaking at the National Association for Business Economics conference in Washington, Goolsbee warned against prematurely easing policy. He said officials have previously underestimated inflation by labeling it temporary and stressed the importance of avoiding that mistake again.
“Front-loading too many rate cuts is not prudent in that circumstance,” he said. “Before we cut rates more to stimulate the economy, let’s be sure inflation is heading back to 2%.”
Inflation remains above target
The latest data showed core inflation, measured by the personal consumption expenditures index and excluding food and energy, running at 3% in December. That marked a slight increase from November and remains notably above the Fed’s goal.
While some price pressures are linked to tariffs, which policymakers view as temporary, Goolsbee emphasized that service sector inflation has remained stubborn and is not driven by trade measures. He said this requires vigilance from the central bank.
“Stalling out at 3% is not a safe place to be,” Goolsbee noted, adding that 3% inflation falls short of the commitment the Federal Reserve made when adopting its 2% objective.
Market expectations for cuts
Financial markets currently anticipate that the Federal Open Market Committee will likely keep rates steady at least through midyear. Futures pricing suggests roughly even odds of a cut in June and a higher probability of easing in July.
The Fed reduced rates three times by a quarter percentage point late last year. Goolsbee has previously suggested that additional cuts could be possible later in the year if inflation trends improve.
Waller and broader Fed commentary
Fed Governor Christopher Waller, who has often favored lower rates, adopted a more cautious tone in his own remarks at the same conference. He said policymakers should generally look through tariff effects but acknowledged that recent employment data suggests the labor market may be stronger than expected.
If job growth continues to firm, Waller indicated it could further reduce the urgency for rate cuts. However, he added that it remains unclear whether recent payroll data reflects a durable trend.
Additional commentary from Fed officials, including Governor Lisa Cook, is expected as markets continue to assess the outlook for inflation and monetary policy.
