Fed’s Goolsbee: High inflation remains the “bigger risk” to the economy

by | Sep 25, 2023 | Business

By Howard Schneider

WASHINGTON (Reuters) – Inflation staying stuck above the Fed’s 2% target remains a greater risk than tight central bank policy slowing the economy more than needed to bring the pace of price increases under control, Chicago Fed president Austan Goolsbee said on Monday.

“The risk of inflation staying higher than where we want it is the bigger risk,” Goolsbee said in comments on CNBC. “We have got to get inflation back down to target…We ought to have 100% commitment.”

Goolsbee said the Fed would need to “play by ear” whether any further rate increases are needed.

But he also said the debate over the current phase of Fed policy will “stop being how much more are they going to raise, and transform into well how long do we need to hold rates” at the peak level.

The Fed last week held its benchmark federal funds rate steady in a range of from 5.25% to 5.5%, with most policymakers anticipating one more quarter point rate increase would be needed this year.

More notably, they cut in half the pace at which the policy rate is expected to fall next year as inflation slows, with officials projecting only half a point of rate cuts next year versus the full percentage point reduction anticipated as of June.

(Reporting by Howard Schneider; Editing by Chizu Nomiyama)

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