Federal Reserve Bank of Chicago Austan Goolsbee said as long as inflation continues down toward the central bank’s 2% goal, interest rates will be “a lot” lower over the next 12-18 months.
But Goolsbee agreed with Fed Chair Jerome Powell, noting policymakers are not in a hurry to lower borrowing costs.
“As long we keep making progress toward the 2% inflation goal, over the next 12 to 18 months rates will be a lot lower than where they are now,” Goolsbee said on CNBC Friday.
The Chicago Fed chief said it makes sense to slow rate cuts at some point amid uncertainty over where the neutral rate is. That’s the level where policy neither stimulates nor restrains the economy.
“If there’s disagreement of what’s the neutral rate, it does make sense at some point to start slowing how rapidly we’re getting there,” he said.
Goolsbee added that interest rates remain restrictive, so there’s still room to cut borrowing costs to a more neutral level.
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Policymakers lowered rates by a quarter percentage point last week, following a larger reduction in September. Several Fed officials, including Powell, have advocated for a cautious and slow approach to further reductions given the strength of the economy.
Data out earlier Friday showed US retail sales advanced in October, boosted by autos. Furthermore, significant upward revisions to the prior month’s data suggest consumers entered the final months of the year with strong momentum.
In an interview with Bloomberg Television’s Michael McKee later Friday, Goolsbee said he thinks interest rates will come down along the lines seen in the recent dot plot projections.
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Goolsbee also said the current rate of inflation is “too high” to stay where it is for an extended period. He cautioned against taking strong economic growth as a sign that the economy is overheating given productivity gains over the last year.
“If productivity is rising, you can have faster growth in the economy without generating more inflation,” he said on Bloomberg TV.
Boston Fed President Susan Collins and the Richmond Fed’s Tom Barkin also spoke Friday. Collins said a December interest-rate cut remains on the table, adding policy is well-positioned for officials to carefully make decisions about the pace and timing of rate cuts.
She noted policy is restrictive, something Barkin echoed in an interview with Yahoo Finance.
“I think we are restrictive enough,” Barkin said. “Inflation has been coming down, that’s a sign we’re restrictive.”
Powell said Thursday the economy is not sending “any signals” that the central bank needs to be in a hurry to lower interest rates, allowing officials to pursue further adjustments “carefully”.
Progress toward the central bank’s 2% inflation target has also slowed. Data out earlier this week showed a key gauge of consumer prices that excludes food and energy rose at a firm 0.3% for a third-straight month.
