Federal Reserve banker Austan Goolsbee says it needs to 'recalibrate' plan to cut interest rates

CHICAGO — The Federal Reserve must rethink its plan to cut interest rates several times this year after inflation unexpectedly turned higher in the January-March period, the president of the Federal Reserve Bank of Chicago said on Friday.

Austan Goolsbee said the Fed remains committed to getting inflation, as measured by the Consumer Price Index, down to 2% increases nationwide, year over year. The index climbed 3.5% last month compared with March 2023, which followed February’s 3.2% rise and January’s 3.1%.

“I think we have to recalibrate,” he told a meeting of journalists here. The trend of smaller increases in the price index “doesn’t look like it’s going to be as rapid as it looked for the previous six to seven months.”

Goolsbee's public caution about reducing interest rates came three days after Fed chairman Jerome Powell said it would take “longer than expected” to achieve the desired 2% inflation — and therefore the current rates need “further time to work” before they are cut.  

Calling himself a “proud data dog,” Goolsbee said on Friday, “the first rule of the kennel, if you are unclear, is to stop walking and start sniffing and to be with the numbers” by studying the available economic data before deciding when, and if, to change interest rates.

Employment statistics, such as the jobless rate and the percentage of eligible workers with jobs, are among the data that the Fed’s interest-rate setting Federal Open Market Committee is tracking, particularly with recent increases in immigration to the United States.

“More immigration makes the dual mandate goals a little easier to accomplish,” Goolsbee said, referring to the Fed’s priorities of 2% inflation and full employment.

“Sectors of the economy that have had massive labor shortages through the COVID times — leisure and hospitality, where a high share of the workforce is immigrants — you would think that you will see job growth stronger in those” sectors due to more workers coming into the United States from abroad, he said, responding to a Newsday question.

Goolsbee also said the U.S. economy is coming off a strong 2023, when inflation — that spiked the previous year — moderated, economic growth slowed without causing widespread unemployment, and a recession was avoided.

“We’re going to get to [an annual inflation rate of] 2%,” he declared twice before the Society for Advancing Business Editing and Writing conference. The Fed “must in my view, for credibility purposes … get inflation back to 2%.”

Asked about the 2024 presidential election, Goolsbee, who served as a top economist in the administration of then-President Barack Obama, a Democrat, said he and his Fed colleagues are focused on their “dual mandate” of moderating inflation and fostering full employment, not playing politics.

“The elections are not” discussed in FOMC meetings, Goolsbee said. “The dual mandate drives our decisions and that’s what’s going to drive our decisions this year.”

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.