Chicago Fed’s Goolsbee says inflation is too high; Williams sees price pressures easing
Two Federal Reserve officials on Thursday expressed some optimism about inflation, but neither indicated any likelihood that interest rates would change anytime soon.
Chicago Federal Reserve President Austan Goolsbee said Thursday that inflation is still trending in the wrong direction, although there are a few bright spots. A little later in the afternoon, New York Fed President John Williams said he expected inflation readings to trend downward.
In a live CNBC interview from his home district, Goolsbee declined to speculate on where he thinks interest rates will go. But in remarks echoing the sentiment expressed by new Fed Chairman Kevin Warsh a week ago, he said he remains focused squarely on inflation.
“You’ve seen some improvement in services inflation now, and I would describe that as something we would want to see,” Goolsbee said from Cboe’s trading floor. “But right now, between the two sides of the Fed’s authority, the inflation side and the labor market side, the problem is clearly on the inflation side.”
The comments came just hours after the Commerce Department reported that core inflation, as measured by the personal consumption expenditures price index, the Fed’s preferred gauge, stood at 3.4%, the highest level since October 2023.
price increases distributed fairly evenlyGoods increased by 0.4% and services increased by 0.5%, the biggest increase since January. On the goods side, most of the gain came from energy, with an increase of 6.5%, while services came from transportation services, which is a sector sensitive to gas prices and increased by 0.8%.
Markets expect the Fed to raise its benchmark interest rate in September, but Goolsbee did not make a commitment on this issue. He said he “applauded” Warsh’s move to discourage such “forward guidance” in the Fed’s communications. The Federal Open Market Committee’s post-meeting statement was much shorter than standards and the forward guidance language was removed.
“Let’s streamline, get some forward guidance from there. Let’s not speculate on the rate path,” he said. “I think it’s healthy for us to have these resets.”
Goolsbee eliminated the notion of rancor within the Fed when Warsh took over. He noted that the two were “bulwark bodies” during the global financial crisis, when Warsh helped develop rescue programs and Goolsbee was a senior economic adviser in Barack Obama’s White House.
“He’s coming with new ideas. He’s a serious guy. You saw at the press conference that he’s coming with a different style,” Goolsbee said. “Before I joined the Fed and since I came to the Fed, I was uncomfortable with the use of forward guidance and routinely speculating on the future of interest rates.”
Williams sees reason for hope
New York Fed leader Williams said that although he was happy with the current level of interest rates, he expected inflation readings to start falling.
The influential policymaker’s first statements since last week’s meeting show that concerns about inflation have decreased, but they are still not enough to talk about cuts.
“Given the high level of inflation, it is imperative that we return it to our long-term target of 2 percent in a sustainable manner,” Williams said at the Crane Monetary Fund Symposium in Jersey City, New Jersey. he said. “The current stance of monetary policy is well positioned to do this.”
Williams listed three reasons why he thinks inflation will fall: the reduced impact of tariffs; He hopes that the Iran war is nearing its end and thus energy prices will fall; The expectation that housing inflation will slow down with a moderate increase in rents.
Inflation will fall to 3.5% this year from the current 4.1%, he said, and the Fed will “continue on a sliding path” toward its 2% target by 2028.
“Like the World Cup tournament, the economy can take surprising and unpredictable turns,” he said. “One thing is certain: my unwavering determination to support maximum employment and reduce inflation sustainably to our long-term target of 2 percent.”
The FOMC’s next meeting will be held on July 28-29, and markets are expecting a rise of around 30%, according to CME Group estimates. FedWatch. Goolsbee is a non-voting participant in FOMC meetings this year, but will receive a vote in 2027. Williams is a permanent voter.
