Chicago Federal Reserve President Austan Goolsbee stated that the pace of future Federal Reserve rate cuts will depend on economic conditions. He expressed hope that the Fed will be nearing a stopping point for rate reductions by the end of next year.
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Goolsbee, in comments to reporters, said he is “hopeful that conditions continue to evolve such that we can get in close to the range” where monetary policy has a neutral impact on the economy. While he didn’t specify his estimate for a neutral rate, he suggested a level around 3% “doesn’t seem crazy.” This is notably lower than the current federal funds rate of 4.5% to 4.75% and aligns with the median projection of Fed officials in their September meeting.
Anticipating a December Rate Cut and Updated Economic Projections
The Federal Reserve is widely anticipated to implement another quarter-percentage-point rate cut at its upcoming December 17-18 meeting. The meeting will also include updated economic projections from policymakers, offering insights into their views on the economy and the future trajectory of monetary policy.
Goolsbee’s Perspective on the Current Economic Landscape
Goolsbee, who will be a voting member on the Federal Open Market Committee (FOMC) in 2025, believes the economy is at or near full employment and expects progress toward the Fed’s 2% inflation target. He envisions a scenario where the Fed can continue gradually reducing rates while monitoring economic developments and determining an appropriate stopping point.
He indicated that a significant, unexpected surge in inflation or a surprising tightening of the labor market would be required to alter the Fed’s current course. “For us to get off the path that I envision over the next year, conditions would have to change on either or both…Inflation looks like it’s not heading to 2%, the job market looks like the economy’s overheating,” Goolsbee explained.
November Jobs Report Reinforces Economic Stability
A recent report indicating that U.S. firms added 227,000 jobs in November further supports the view that the economy has largely normalized after the pandemic-era disruptions. The unemployment rate is considered to be at or near full employment, and average monthly job growth is around pre-pandemic levels.
Goolsbee characterized the job market as being “in better balance and in kind of a steadier state.” He anticipates a “series of close meetings” in the coming months as Fed officials deliberate on the extent and pace of further reductions to the benchmark policy rate.
Rising Labor Productivity and its Potential Implications
Goolsbee also expressed growing confidence in the persistence of the recent rise in labor productivity. He believes this development could bolster forecasts of slowing inflation, enhance U.S. growth potential, and potentially mitigate the impact of labor constraints arising from factors like population aging or stricter immigration policies.
“We have to start taking seriously the idea that this thing is continuing,” Goolsbee remarked, emphasizing the potential implications for monetary policy. He cited anecdotal evidence from business leaders who have implemented labor-saving technologies due to hiring difficulties, suggesting the possibility of such changes spreading across various industries.
Conclusion: Data-Dependent Path Forward for Fed Policy
Goolsbee’s remarks underscore the data-dependent nature of the Federal Reserve’s approach to monetary policy. The pace of future rate cuts will hinge on the evolving economic landscape, with a particular focus on inflation and labor market dynamics. The Fed’s December meeting will provide crucial updates on the central bank’s outlook and intended policy path.
