The Fed’s Goolsbee says the neutral rate is ‘well below’ where it is today

President of the Chicago Federal Reserve Bank Austan Goolsbee he said on Monday that the Fed’s interest rate reduction campaign has a ways to go before reaching a “neutral” rate and that the central bank should continue to cut to reach that level as long as the economy shows no signs of overheating.

Goolsbee, who will be a voting member of the Federal Open Market Committee (FOMC) in January that makes monetary policy decisions, in a statement released by FOX Business Network “Claman Countdown“Policymakers may continue to cut rates until neutrality is reached, but the path may be slower if the economy grows faster.

“Without signs of the economy overheating, I still feel comfortable saying that if you look at the broad dot structure, prices have a fair way to go before they get to something neutral,” Goolsbee told host Liz Claman on Monday. interview.

“If inflation is coming to the 2% target, and unemployment is rising, but getting to something like sustainable full employment, you better be careful about putting cold water in the bathtub if you have a temperature about where. what you want,” said Goolsbee.

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His words followed Fed chairman Jerome Powell at the beginning of this month he said that the Bank is not in a hurry to lower it to reach the neutral level, which he explained is “an interest rate that does not raise the economy and support it or pull it down, which would be a strict, restrictive policy. .”

Powell added that while there is no “ideal or symbolic way” to confidently measure the level of neutrality, it “argues to tread carefully.” Goolsbee echoed the chairman’s words, saying that the level of neutrality is known “for its functions in the economy.”

Goolsbee noted that FOMC policymakers’ forecasts of future interest rate hikes on the “dotted band” all suggest that interest rates are likely to decline over the next year until rates reach a settlement point about what could be a neutral rate.

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Chicago Federal Reserve President Austan Goolsbee said the Fed would continue to cut interest rates unless there is clear evidence that the economy is overheating and inflation is rising again. (Photo by Chip Somodevilla/Getty Images / Getty Images)

“Whether you’re on the higher side or the lower side of where you’re going to stabilize, almost everyone agrees that it’s lower than where we are today. So as we get closer to where the disagreement is about what’s going to be resolved, I see that it makes sense to start slowing down the rate cuts,” said Goolsbee.

“Without overwhelming evidence of overheating, I don’t see a case for not continuing to lower, lower the Fed rate, because everybody agrees that it’s way below where we are today,” he added. “So until we start getting into the range where people think that’s the way to solve it, I still feel like this way, that’s the way it depends.”

Goolsbee also cautioned Fed watchers against over-interpreting any individual inflation report, because it can be a “noisy” data series with month-to-month movements that can be a long-term indicator of the pace of price growth.

Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, on May 1, 2024. (Photo by Liu Jie/Xinhua via Getty Images/Getty Images)

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The Commerce Department is expected to release October data on the Fed’s preferred inflation gauge, the Personal consumption expenditure (PCE) index.on Wednesday.

PCE readings for September it was 2.1% year-on-year and 0.2% month-on-month.