Fed’s Goolsbee: Multiple Rate Cuts Imminent

The Federal Reserve is poised to pivot towards a more accommodative monetary policy, according to recent statements from Chicago Fed President Austan Goolsbee.

Goolsbee, speaking on Friday, noted a growing consensus among Fed officials that interest rate cuts are necessary to address the evolving economic landscape. While he didn’t advocate for a significant initial reduction, he emphasized the need for multiple rate cuts in the coming months.

Key factors driving this shift include:

• Weakening labour market: Recent employment data suggests a slowdown in job growth, raising concerns about a potential economic downturn.

• Inflationary pressures easing: While inflation remains above the Fed’s target, there are signs that it is gradually declining.

• Revised economic projections: The Fed’s dot plot, which indicates individual policymakers’ rate expectations, suggests a more dovish outlook.

Goolsbee expressed concern that maintaining the current level of monetary tightening could increase the risk of a recession. He emphasized the importance of striking a balance between addressing inflation and supporting economic growth.

While the timing and size of the upcoming rate cuts remain uncertain, Goolsbee’s comments signal a significant shift in the Fed’s stance. As the central bank navigates a complex economic environment, investors and policymakers alike will be closely watching for further indications of a more accommodative monetary policy.

Key Quotes:

The job market is slowing down.

Today’s employment data is a continuation of what we’ve been seeing.

It raises some serious questions about this meeting and next several months that we make sure not to make labour market turn into something worse.

There is a overwhelming Fed consensus for multiple rate cuts.

When asked about bigger rate cuts: Look at the dot plots, which didn’t show inflation coming down as fast or unemployment rising so high.

When asked about 50 bps cut in September: What happens at next meeting alone is not what is most important.

The current employment average is too low for replacement rate.

We have a little more tolerance for an upside surprise on CPI as the longer arc shows inflation coming down.

I am concerned if we maintain this level of restrictiveness, the odds of recession might be rising.