Chicago Fed President Austan Goolsbee is tapping the brakes on Wall Street’s favorite storyline of early rate cuts, telling an audience in Washington on Tuesday that the central bank should not resume lowering interest rates until there is clearer proof that inflation is actually headed back to the Federal Reserve’s 2 percent target. With price gains still running hotter than officials are comfortable with, he warned against repeating past missteps of assuming inflation would simply fade on its own, even as markets continue to bet on easing later this year.
Goolsbee’s Warning In Washington
Speaking at the National Association for Business Economics meeting, Goolsbee told reporters and laid out in prepared remarks that “3% inflation is not good enough” and said policymakers have already been “burned” once by treating inflation as transitory, according to Reuters. His comments land squarely in the middle of an ongoing internal Fed debate over whether to begin easing policy this year, and his tone highlighted how split officials remain on the timing and pace of any future cuts.
Markets Still Pricing Cuts Later This Year
Traders, for now, are not fully buying the cautious talk. Futures markets have pushed back the start date for easing but still assign roughly a 50 percent chance of a Fed rate cut in June and about a 71 percent chance in July, data cited by CNBC show. That disconnect between market bets and policymakers’ more wary stance helps explain why projections for the rest of the year are unusually scattered.
Data Keeping Policymakers On Edge
The Fed’s preferred inflation gauge, core PCE, which strips out food and energy, was running at about 3.0 percent in December, according to the Bureau of Economic Analysis. After three quarter-point cuts in late 2025 that together reduced the federal funds rate by 0.75 percentage points, officials have signaled they now want to see a sustained run of cooler inflation readings before cutting again, as reported by CBS News.
Why Goolsbee Is Pushing For Patience
Goolsbee argued that settling in around 3 percent inflation for too long could chip away at the Fed’s hard-won credibility, and said it is “not obvious” policy is actually restrictive enough given current price trends, points highlighted in Reuters coverage. He also warned against assuming a rapid burst in productivity growth will suddenly make rate cuts harmless, cautioning that leaning too heavily on that optimistic scenario could leave the economy exposed if those gains never show up.
What To Watch Next
Investors, businesses, and households will be zeroed in on the Fed’s March 17-18 policy meeting, along with the latest labor and inflation data that land beforehand, for any clearer signal that disinflation is back on track, according to the Federal Reserve. For a read on how those developments are feeding into market expectations, traders are still turning to the CME Group’s FedWatch tool for up to the minute probabilities. CME Group
