Chicago Fed President Austen Goolsbee said on Friday that he would like to see inflation fall further to the Fed’s 2% target before supporting another rate cut.
He remains concerned about inflation because he sees strong economic growth and a stable job market, and needs to see inflation fall back to 2% before cutting rates.
“If we can get more improvement on the inflation front, I think rates can still continue to come down further, but we just need to see progress on the inflation front,” Goolsby told Yahoo Finance. “We need to see the job market remain stable, as it has been for several months.”
The latest consumer price index data for January, released on Friday, showed prices rose 2.4% from the previous year. On a “core” basis excluding food and energy, prices rose 2.5% from the previous year. The Fed targets an inflation rate of 2% per year.
Read more: January CPI breakdown: Natural gas prices fall, housing costs remain high
Goolsby said while there were encouraging signs in Friday’s inflation report, there were concerns. He said prices for goods affected by the tariffs appeared to be under control, but Goolsby was concerned about rising service-sector inflation, which he said was “not suppressed” and was not driven by tariffs.
“What’s more concerning is that we’re still seeing quite high services sector inflation, and that tends to persist,” Goolsby said. “Hopefully we’ve seen the impact of tariffs on inflation peak and that part of the impact prove to be temporary.”
Goolsby seemed to suggest the Fed had room to cut rates further before reaching a level he considers a neutral rate that neither stimulates nor constrains economic growth.
“I don’t know how constrained we are,” Goolsby said of current interest rate levels. “Inflation has been above target for more than 4.5 years and we need to see some improvement before we start cutting rates, not just expect inflation to improve on its own.”
Data released by CME Group on Friday showed that investors believe there is a 90% chance that the Federal Reserve will keep interest rates steady at the end of its next policy meeting on March 18.
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