Chicago Fed President: Interest Rate Cut Decision Still Uncertain

Chicago Federal Reserve President Austan Goolsbee stated that he is still undecided about whether to cut interest rates again in December. Goolsbee expressed that the threshold needed for a rate cut is higher due to inflation concerns and the lack of official economic data.

In an interview with Yahoo Finance, Goolsbee said, "I do not have a definite decision going into the December meeting." He added, "Inflation is running above target, and that concerns me. Inflation has remained high for the last four and a half years, and the direction of movement is not good."

Remembering that he voted with other officials to cut rates by a quarter of a percentage point, Goolsbee mentioned that he expects two rate cuts this year and noted that they have already been implemented. He also stated, "While core inflation has been around 3.6% on an annual basis over the last three months, core services inflation has been around 4% over the last three months." The Federal Reserve's inflation target is 2%.

Goolsbee added, "This is concerning because it's going in the wrong direction. If we are just waiting for this to pass because we think it’s temporary, that bothers me."

Regarding the labor market, Goolsbee pointed out that the unemployment rate remains stable at 4.3% and that he pays attention to other measures that are less affected by population changes or immigration policies. "The unemployment rate has not been rising over the past 12 months," he said.

Goolsbee added, "If the labor market begins to deteriorate more clearly, then the balance of risk changes." He also emphasized that critical data such as the employment report and the Consumer Price Index have not been released as the government enters its second month of shutdown.

If the government opens before the Federal Reserve policy meeting on December 10, Goolsbee anticipates that Federal Reserve officials will primarily rely on private sector employment data to assess the health of the labor market and that they will have very little information regarding the inflation situation.

This situation increases Goolsbee's indecisiveness. This apprehension has also been highlighted by the other four Federal Reserve officials who would oppose further rate cuts in December. Federal Reserve Chairman Jerome Powell emphasized in a press conference last Wednesday that the decision on a rate cut in December has not yet been finalized, stating, "this is not a definite outcome; it's quite a distant situation."

Kansas City Federal Reserve President Jeff Schmid expressed that he voted against a rate cut in last week's meeting because he believes inflation is "very high." Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack, although they were not voting members this year, indicated that they would prefer to keep interest rates steady. Atlanta Fed President Raphael Bostic, who is a non-voting member, thinks a quarter-point rate cut is appropriate but emphasized that he has some reservations.

Goolsbee indicated that he is currently more concerned about inflation than the labor market. The employed data, which combines official government data with private sector data, has begun to be published by the Chicago Federal Reserve and this metric has remained at 4.3% as of October 27.

In September, the employment growth measured by ADP showed negative growth. Last week, companies like Amazon and UPS announced that they would conduct mass layoffs, and the October Beige Book data indicates that more employers are reducing their workforce due to decreased demand, uncertain policies, and artificial intelligence.

When asked if employment growth might slow even further when official government data is restored, Goolsbee acknowledged that it could be the case and noted that this is why he is undecided about a rate cut going into the next meeting. "So, I am a bit anxious, and my threshold for a cut is a bit higher than in the last two meetings," he said.