Chicago Federal Reserve Bank President Austan Goolsbee said on Thursday that 2023 has been a good year for cooling inflation, and as long as this trend continues, it will pave the way for the US to cut interest rates in 2024.
However, at the same time, Gulsby also stated that he needs to see more data to confirm that price pressures have eased recently in order to determine how fast the rate of interest rate cuts should be.
"I still believe that the main determining factors for when and how much interest rates will be lowered will depend on changes in inflation data and whether we have achieved our targets." He said in an interview, "I don't like to be constrained when we have data for weeks or months to come out... We won't make decisions about March, June, or anything else in January."
The Federal Reserve decided last month to maintain its policy interest rate in the range of 5.25% to 5.50% and hinted at a rate cut this year. The median personal forecast of policy makers shows that the policy rate will drop to 4.6% by the end of 2024. The lowest official predicted a decrease to below 4%.
"I'm not at the bottom (meaning the most optimistic about interest rate cuts)," Gullsby said of his personal forecast, "I'm closer to the median."
Inflation issues
Data released earlier Thursday showed that the Consumer Price Index (CPI) rose 3.4% year-on-year in December. Gullsby stated that the data is consistent with expectations; Quota; Very close to& Quota;, However, he added that inflation in the service industry was lower than his expectations, while inflation in the real estate market was slightly higher than expected.
However, he said that the latter may have limited impact on the Federal Reserve's 2% inflation target. The 2% inflation target of the Federal Reserve is measured by another indicator, the Personal Consumer Expenditure Price Index (PCE), where housing inflation has a smaller weight.
He said that other data shows that rent is decreasing, which should ultimately affect the overall inflation data.
Gullsby has repeatedly stated that he believes the Federal Reserve has the opportunity to find a "golden path" that can reduce current high inflation levels without causing a surge in unemployment. He said that so far, "we are still working hard.".
"At present, the magnitude of the decline in inflation rate is astonishing in any year, let alone in years when the unemployment rate has not increased," he said.
The data released last week showed that the unemployment rate in December last year was 3.7%, only 0.1 percentage points higher than when the Federal Reserve started raising interest rates in March 2022.
Gullsby stated that this path carries risks, including if housing inflation persists or if there are new supply shocks, such as possible disruptions to Red Sea shipping.
But he added that the risks this year are different from last year, as they also include the possibility that monetary policy may remain tight for too long, leading to an increase in unemployment rates.
The mission of the Federal Reserve is twofold: to stabilize prices and maximize employment. Due to the continued high price pressure, the Federal Reserve's interest rate decisions are mainly focused on bringing inflation back to the target of 2%.
But Gulsby said, "If we continue on the path of restoring our original state, then we will also start to pay more attention to the other side of the task."