2% Inflation? Goolsbee Demands Proof
Chicago Fed President Austan Goolsbee signaled that there's still room for interest rate cuts this year—but with a clear condition: inflation must actually return to its 2% target. In an interview on Tuesday (February 17), he said the Fed could allow for "a few" more cuts if future data shows a consistent disinflationary trend, while cautioning the market not to be complacent just because of a single, seemingly benign inflation release.
Goolsbee noted that the January CPI of 2.4% was indeed lower than expected, but this was partly due to the base effect—high inflation figures from early last year were out of the annual comparison. More troubling, he said, is that service sector inflation remains "untamed," hovering around 3.2% annually. The bottom line: the headline CPI may be easing, but the "engine" of service inflation hasn't fully shut off.
With that in mind, the central bank is now likely in wait-and-verify mode. The Fed held interest rates at 3.50%–3.75% at its January 27–28 meeting, and the market is widely expecting a similar decision on March 17–18. Labor data also hasn't provided an urgent reason for a rush cut: January job growth was 130,000 and unemployment fell slightly to 4.3%, weakening the argument for a "quick cut to save the job market."
The next focus will be on the FOMC Minutes (Wednesday) and PCE data (Friday)—as the Fed uses PCE as its primary benchmark, not CPI. The annual PCE measure has been said to have been "stuck" around 2.8% since May (as of the latest available release), so the next reading will be crucial for testing claims that inflation will fall toward 2% by mid-year. If that path is clear, Goolsbee believes a policy rate around 3% could be a "loose neutral" range, meaning two to three 25 bps cuts are needed. But for now, the main message is simple: The Fed won't believe it until it sees consistent evidence—especially as markets await the leadership transition following Kevin Warsh's nomination to replace Jerome Powell in May.
Source: Newsmaker.id
