Chicago Fed President Goolsbee says officials have to be careful not to get too aggressive with rate cuts

Chicago Federal Reserve President Austan Goolsbee expressed a cautious stance on adjusting interest rates further in light of the current economic landscape characterized by slower growth and a declining labor market. His comments come on the heels of a critical Federal Open Market Committee (FOMC) meeting, where a consensus was reached to implement a key borrowing rate cut.

During his interview with CNBC, Goolsbee highlighted the committee’s careful approach to future rate cuts, stating, “I’m OK with moving to be in a better spot, and I think eventually, at a gradual pace, rates can come down a fair amount if we can get this stagflationary dust out of the air.” He emphasized the importance of exercising restraint, especially considering that inflation has consistently exceeded the target for over four years.

The FOMC unanimously voted (11-1) to lower the federal funds rate to a range of 4%-4.25%, marking the initial easing of this year. Concerns about the impact of tariffs on pricing have contributed to the Fed’s decision making. Although inflation remains above the 2% target, recent analysis indicates that the pace of price increases has only slightly ticked up since the implementation of tariffs in April.

Finding a “neutral” interest rate, which avoids stimulating or constraining economic growth, remains a priority for policymakers. Projections released by the committee show that the neutral rate is estimated to be around 3.1%, a level with which Goolsbee expressed comfort. This suggests that further cuts could be on the horizon, potentially indicating a decrease of one percentage point in benchmark rates, with two more cuts expected this year and one each in the subsequent two years.

“I think the neutral rate of interest is somewhere below where we are right now,” Goolsbee affirmed. He added that successfully bringing inflation down to the target rate would provide the basis for rate cuts.

In addition to monitoring inflation, the Fed is also paying close attention to the labor market dynamics. Recent data has shown a significant decline in hiring trends, even though the unemployment rate currently stands low at 4.3%. To better assess labor market conditions, the Chicago Fed introduced a new labor market monitor that generates real-time analytics and forecasts, including unemployment rates.

This new data tool utilizes 11 different data sets to produce projections for jobless rates, job separations, and the rate at which unemployed workers secure new employment. Goolsbee described the current labor market as exhibiting “a lot of stability,” pointing to this robust data collection methodology as a key factor in providing insights moving forward.