After three cuts to its key interest rate last year, Federal Reserve officials, led by Chair Jerome Powell, have signaled that they are in a new phase of watching and waiting. They’d like to see inflation fall further and gauge what impact that new policies from President Donald Trump, particularly tariffs, will have on the economy before they reduce borrowing costs further.
One of those officials, Austan Goolsbee, is president of the Fed’s Chicago branch. In an interview with The Associated Press, Goolsbee said in an interview on Feb. 7 that he expects inflation to decline and thinks the job market is stable. If tariffs don’t worsen inflation, rate cuts could resume, he added.
The interview was edited for clarity and length.
Q. Where do you see the economy right now?
A. We’ve got solid growth and we’ve got stable employment at around full employment. There have been bumps along the way but looking at the longer arc, we have made a lot of progress on inflation toward our target. Of course, we should keep an eye out for overheating. But thus far this doesn’t look like overheating to me.
If we can clear out the fog coming from these uncertainties in the short run, what lies beneath there is pretty strong.
Q. The Fed cut its key rate a full percentage point last year. What can you say about its next moves?
A. Now we’re getting into this area where we’re uncertain where we are going to ultimately settle — it would make sense to kind of slow the rate at which we’re going down and feel our way to the stopping point. Add on top of it, these new uncertainties, and I do feel like we’ve still just got to wait for the dust to clear before it’s going to be easier to see the through line.
Q. How might potential for new tariffs affect your thinking about inflation and rate cuts?
A. If we were to see further increases in inflation, then we’d have to be trying to distinguish which part is overheating, which threatens to be persistent, and which part is just a one-time cost increase, say, coming from tariffs. And that’s not that easy to do, it’s going to take time to figure that out.
I will say the 2018 tariff experience was one in which the tariffs almost immediately went into the prices of those affected commodities or products. But they did not make a material difference to aggregate inflation.
So if there is no further uptick in inflation, then I’m still back on my underlying view of the economy is that we’re pretty much stabilized at full employment, and the through line of inflation and inflation expectations are for a return to 2% and commensurate with inflation going down, I think the rates can go down. So it in my view it all depends on what the conditions look like. But I don’t have a set time frame of — is that in two meetings or five meetings or one meeting or, or that kind of thing.
