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Chicago Federal Reserve President Austan Goolsbee said evidence that inflation continues to cool alongside more signs of economic softening should set up the central bank to reconsider if monetary policy is too tight.
Goolsbee expressed that view Monday in a CNBC interview. Earlier this month, the government’s Consumer Price Index report for May showed headline inflation at 3.3% Y/Y vs. 3.4% in the prior month. Core CPI at 3.4% slowed from 3.6% in April. Both readings were still above the Federal Reserve’s 2% target.
“I think if we get more months, like what we have just seen in the last month on inflation, coupled with slowing conditions in some of the other parts of the real economy, then you would have to start questioning should we remain as restricted as we’ve been,” he said on CNBC’s “Squawk Box” program. Goolsbee is not a voting member this year on the Federal Open Market Committee.
The Federal Reserve had indicated policymakers expect to make one rate cut of 25 basis points before the end of 2024. The fed funds futures market on Monday projected a 61% probability that the Fed will start rate cuts at its Sept. 17-18 meeting.
Policymakers are starting to see “progress” on housing inflation and there’s been improvement in prices in services and goods since January, Goolsbee said. “I’m hopeful that we’re going to get a little bit more confidence that on the inflation side, we’re heading back to two [percent],” he said.
In terms of the economy, there are a “couple of warning signs,” in rising claims for unemployment insurance, rising credit-card delinquencies and what appears to be a cooling in consumer spending.
“Taken in the context of how all the other advanced economies are doing, it’s worth wondering about where we are on our restrictiveness,” he said.