By Catarina Saraiva and Ananya Chag
Federal Reserve Bank of Chicago President Austan Goolsbee emphasized the central bank will not overreact to any one report, adding policymakers will get a lot of data prior to the Fed’s next meeting.
Goolsbee, who spoke on the heels of the release of a weaker-than-expected employment report, said it’s the Fed’s job to figure out the “through line” of the data and move in a “steady” way. Still, he noted if rates stay restrictive too long, policymakers have to think about the employment side of the mandate.
“We’d never want to overreact to any one month’s numbers,” Goolsbee said in an interview with Bloomberg Television’s Michael McKee and Sonali Basak. But “if unemployment is going to go up higher than the neutral rate, that is exactly the kind of pinching on the other side of the mandate that the law says the Fed has to think about and respond to.”
Fed officials held interest rates steady at a more than two-decade high at their meeting earlier this week, but Chair Jerome Powell signaled the central bank may start lowering borrowing costs at their next meeting in September.
Friday’s jobs report boosted the odds of such a move. US hiring markedly slowed in July and the unemployment rate rose to 4.3%, the highest level in nearly three years. Payrolls increased just 114,000 last month, falling short of nearly all economists’ forecasts.
In a separate interview Friday with SiriusXM, Goolsbee said that if inflation continues to ease and the labor market cools further, especially if it deteriorates past what the Fed considers full employment, “that’s exactly the kind of condition where, in my view, the Fed should react.”
Goolsbee said economic conditions will determine the timing and size of rate reductions. But “when conditions warrant a cut, they tend not to be one individual cut,” he said on Bloomberg Television.
Policymakers have held interest rates at this level for a year now. At the same time, inflation has been cooling, meaning that monetary policy is effectively putting more pressure on the economy now than at this time last year, Goolsbee said.
“We will need to, in short order, balance our level of tightness with what the conditions are in the economy,” he said in the SiriusXM interview that will air in full on Monday.
Bigger Cut?
In the wake of the jobs report, several Wall Street banks ramped up expectations for aggressive Fed rate cuts this year. Economists at Citigroup Inc. and JPMorgan Chase & Co. now expect half-point rate cuts in September and November, followed by a quarter-point cut in December.
Traders now see the central bank cutting rates by more than a percentage point this year, according to futures markets. Powell said Wednesday that said he could “imagine a scenario in which there would be everywhere from zero cuts to several cuts” over the remainder of 2024 depending on how the economy evolves.
Adjustments to policymakers’ post-meeting statement, along with comments from Powell during Wednesday’s press conference, indicate officials are increasingly worried about unduly weakening the labor market, a shift from their laser focus on inflation for more than two years.