Goolsbee Sends Dovish Signals
On June 2, Chicago Fed President Goolsbee reiterated his optimistic outlook on the future path of rate cuts during a public event in Davenport, Iowa. He stated that if the current uncertainties caused by trade policies can be alleviated, the Federal Reserve may continue with the rate cut process. He believes that the current fundamentals of the U.S. economy remain strong, and the Federal Reserve might be on a healthy policy path.
Strong Performance on Dual Mandate
Goolsbee emphasized that there has been positive performance in both of the Federal Reserve's core mandates — employment and price stability. He noted, "If we can navigate this period of volatility smoothly, I think the dual mandate has been satisfactorily fulfilled, and we might be on the right track."
As a member of the Federal Open Market Committee (FOMC) with voting rights on monetary policy this year, Goolsbee is often seen as a representative of the "doves." His speeches are frequently interpreted by the market as favoring a loosening of monetary policy.
Rate Cuts May Happen Within 15 Months
Goolsbee revealed that if the economy continues on its current trajectory and the tariff measures proposed by the Trump administration are not as aggressive as initially thought, there is a "strong possibility" that the Federal Reserve will significantly lower rates within the next 15 months.
Currently, the U.S. labor market remains robust, while the latest inflation data shows pressures are easing. The core personal consumption expenditures (PCE) price index in April rose by only 2.1% year-on-year, which is nearly in line with the Federal Reserve's 2% target.
Cautious About Inflation and Tariff Impact
Despite his optimism, Goolsbee still cautioned the market not to overlook the potential impact of tariffs on inflation. He pointed out that, based on the currently disclosed data, the direct impact of tariffs on inflation is "surprisingly small," but this may not be sustainable.
He recalled experiences from the COVID-19 pandemic period when the Federal Reserve misjudged inflation as a temporary phenomenon, resulting in U.S. inflation soaring to a 40-year high, forcing rapid policy tightening. He admitted, "We must not repeat the same mistake."
Market Expects Rate Cuts to Start This Year
Since December 2024, the Federal Reserve has kept the federal funds rate within the range of 4.25% to 4.50% and has held steady for three consecutive meetings. The next Federal Open Market Committee meeting will be held on June 17-18.
According to market futures pricing, investors generally expect the Federal Reserve to keep rates unchanged in June and July, but there is still hope for initiating a rate-cutting cycle within the year. Goolsbee's remarks added further confidence to this expectation.
