Fed Golspi signals possible interest rate cuts amid concerns about tightening monetary policy
Date
8/19/2024 8:41:42 AM
(MENAFN) Chicago Federal Reserve bank President Austin Goolsbee has expressed concerns that the tightening of monetary policy in the United States is making it increasingly difficult for individuals and businesses to obtain loans, which could harm the labor market if interest rates are not reduced. Goolsbee emphasized that the Federal Reserve is widely expected to cut interest rates in the coming month, highlighting the risks of maintaining a restrictive policy for too long. In an interview with CBS, he explained that by raising interest rates and keeping them elevated while inflation gradually declines, the Fed is effectively tightening financial conditions. Goolsbee warned that excessive tightening could eventually lead to negative consequences for employment, especially as economic data presents a mix of both positive and troubling indicators.
While Goolsbee refrained from explicitly stating whether he would advocate for a rate cut at the Fed's next meeting scheduled for September 17-18, his remarks align with his recent stance that officials should pay close attention to signs of economic slowdown, such as rising unemployment and increasing credit card delinquencies. He suggested that these indicators might signal that the economy is reaching a point where the current level of monetary restraint is no longer necessary. The Federal Reserve has kept interest rates within a range of 5.25 percent to 5.50 percent since July 2023, following a rapid series of rate hikes over the preceding 16 months aimed at combating the highest inflation levels seen since the 1980s. However, as inflationary pressures ease, the debate has shifted to how quickly and by how much the Fed should lower rates to avoid stifling economic growth.
Financial markets are now fully pricing in a rate cut next month, with the primary debate revolving around the size of the reduction—whether it will be a quarter-point or half-point cut. While the odds currently favor a smaller cut, a clearer indication of the Fed's intentions is expected on Friday when Fed Chairman Jerome Powell delivers a keynote address at the annual Jackson Hole Economic Symposium in Kansas City, Wyoming. Goolsbee's comments underscore the delicate balancing act facing the Fed as it seeks to navigate the economy through a period of mixed signals, aiming to avoid both overheating and unnecessary contraction.
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