Chicago Fed President Austan Goolsbee expects interest rates to decrease significantly in the coming year. Speaking at a keynote conversation on the Midwest economy and US monetary policy, moderated by Crain’s Chicago Business Editor-in-Chief Ann Dwyer, Goolsbee indicated the Fed’s tightening cycle may be nearing its end.
Goolsbee emphasized the limited nature of the Fed’s tools, highlighting the delicate balance between controlling inflation and avoiding a severe economic downturn. He cautioned against aiming for outright deflation, stating that the only way to achieve it economy-wide would be to “tank the economy,” recalling the deflationary period of the Great Depression as an undesirable outcome.
Instead, Goolsbee stressed the importance of wage growth outpacing inflation, a trend he noted has recently resumed after a period of decline. He expressed optimism about the progress made in curbing inflation and achieving a sustainable level of full employment. Goolsbee believes the economy has transitioned from an “overheated” state to a more balanced labor market.
However, Goolsbee acknowledged the current disconnect between key economic indicators and the prevailing interest rate levels. With inflation nearing the target rate, unemployment close to desired levels, and GDP growth returning to trend, he argued that maintaining significantly elevated interest rates poses risks. He used the analogy of filling a bathtub: once the desired temperature is reached, one must stop adding ice cubes to avoid overcooling.
