Federal Reserve (Fed) Bank of Chicago Chairman Austan Goolsbee noted on Friday that markets tend to overreact to changes in interest rates and that the Fed should maintain a sluggish and steady approach to achieving a neutral interest rate.
The most crucial information
(Regarding December interest rate cut or pause) I don’t like to tie our hands, more data coming soon.
Markets react immediately and in the most extreme way; This is not the Fed’s schedule.
The Fed needs to focus on longer-term trends.
We will be watching interest rate cuts in line with Fed policymakers’ September projections.
Personally, I feel comfortable not charging directly towards neutral and slowing down as I get closer to it.
Inflation data must continue to improve.
If we saw a reversal in inflation, we would need to determine whether it is an augment.
Not much has changed in this respect over the last few weeks.
Recent inflation has been slightly above target and, if extended, will be too high.
The inflation data series is highly volatile.
The neutral level is significantly lower than the current Fed interest rate.
If productivity growth remains above trend, caution should be exercised in relying on the GDP growth rate to see whether the economy is overheating.
I’m completely fine with the lack of consensus at the Fed on where the neutral interest rate is.
The dispute over a neutral interest rate could support slower cuts.
