Fed's Goolsbee: Will take longer than 2025 to get to neutral policy rate
Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee hit markets on an already-volatile Friday with more bad news, noting that inconsistent policy approaches from the US government cause a high level of economic uncertainty that make it difficult for the Fed to draw a bead on where the economy, and inflation specifically, are likely heading.
Key highlights
This was a solid jobs report.
Tariffs add a little uncertainty.
The potential of escalating trade wars throwing a wrench into supply chains is very real.
I am hopeful, after what we saw recently, that tariffs end up not being a big impediment to trade.
I'm comfortable with path of the economy.
Consumer survey showing jump in near-term inflation expectations is less influential to me.
Wage growth is about consistent with 2% inflation.
Longer-run market-based inflation expectations show the market believes the Fed will get inflation to 2%.
One-time tariff is a transitory shock.
Retaliation would complicate impact of tariffs.
I see the neutral rate a fair bit lower than where we are today.
The Fed are on hold now, but over next 12-18 months, the settling policy rate will be a fair bit below where it is now.
The speed at which rates come down will be slower with more fogginess.
We need to get to settling rate on a judicious timetable.
What's happening in longer-run rates is not our target; that's more the purview of the Treasury.
I think it will take longer than end-2025 to get to neutral policy rate.
I think we are on path to 2% inflation.
I don't think the Fed would play a role in any sovereign wealth fund.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
