Chicago Fed President Says Rate Cuts Only Possible After Confirming Inflation Downtrend

Need to See Inflation Back at 2%

Austan Goolsbee, President of the Federal Reserve Bank of Chicago. Reuters Yonhap News Agency

On the 24th (local time), Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said that cutting interest rates would not be appropriate until there is clear evidence that inflation is on a downward trajectory.

In a speech at the National Association for Business Economics (NABE) annual meeting held in Washington, D.C. that day, President Goolsbee said, "Policymakers have been burned in the past by assuming that inflation was only temporary," adding, "In this situation, it would not be wise to implement too many rate cuts at once."

He said, "People cite rising prices as one of the most urgent issues, and we need to pay attention to that," stressing, "Before further cutting rates to stimulate the economy, we must first confirm that inflation is returning to around 2%."

In December, the core personal consumption expenditures (PCE) price index rose 2.9% year-on-year, exceeding the market forecast of 2.8%. The core PCE is the key inflation gauge that the Federal Reserve (Fed) uses in making monetary policy decisions.

In particular, President Goolsbee pointed out, "An inflation rate of 3% is not sufficient and falls short of the level we committed to when the Fed set its 2% target."

He went on to say that the persistently high rate of housing price increases is not due to tariffs, and emphasized that the Fed must "not let its guard down."

Previously, President Goolsbee had said that the Fed could cut interest rates in the second half of this year. However, markets expect the Federal Open Market Committee (FOMC) to keep the federal funds rate unchanged until June or July. According to CME FedWatch, the probability of a rate cut in June is reflected at 50%, and the probability of a rate cut in July is 71%.