Regional President Speech

Last Updated: 02�14�24 Chicago Fed President Austan Goolsbee provided an update of his views on the U�S� economy and monetary policy February 14, 2024, during a moderated Q&A hosted by the Council on Foreign Relations in New York City as part of the C� Peter McColough Series on International Economics� Below are planned talking points Goolsbee prepared for the event and shared with reporters in advance� The views expressed are his own and are not necessarily those of the Federal Reserve System or the Federal Open Market Committee� Nearly every serious reduction in very high in�ation until now has come with a deep recession, in the United States and elsewhere� Yet in 2023, in�ation according to the Price Index for Personal Consumption Expenditures �PCE� was down about 3 percentage points from a year earlier—one of the biggest drops in 50 years—with GDP growth remaining strong and the unemployment rate holding steady at well below 4 percent� As we enter 2024, a number of considerations are in�uencing my thinking about the economy and monetary policy: 1� Over the past seven months core PCE in�ation �which strips out volatile food and energy prices� has been running at the Federal Reserve’s 2 percent target or even below� Rate cuts should be tied to con�dence in being on a path toward the target� I don’t support waiting until in�ation on a 12-month basis has already achieved 2 percent to begin to cut rates� • More data like we have seen in the past six months would indicate that path, but that’s probably too stringent� Even if in�ation comes in a bit higher for a few months �as many forecasts suggest�, it would still be consistent with our path back to target� • Over the past six months the news on goods prices has been especially favorable and even in�ation in PCE services not including housing has made good progress� But over the past few months the deceleration in housing services in�ation has Pnrivaocyt - Terms been as fast as expected� That is at odds with market data on rents for new leases, so I expect improvements to resume� Still, that puzzle got bigger with the Consumer Price Index �CPI� data yesterday, and it is something I am watching� • Given how variable monthly in�ation is, it’s always important not to judge a trend from one month’s number� Progress is best measured in three-, six-, and 12-month increments� Remember, also, that the Fed’s 2 percent target is for PCE in�ation, not CPI in�ation� They can di�er somewhat signi�cantly in some important aspects, especially in regard to some of the components that have behaved strangely as of late, like housing and other services� So, we will need to see what those PCE data show� 2� Our current policy stance is quite restrictive� • The nominal federal funds rate is in the 5-1�4 to 5-1�2 percent range� Adjusting for market pricing for in�ation over the next year, that translates into a real federal funds rate in the neighborhood of 3 percent� This is as high as it has been in decades and well above the long-run real rate of 0�5 percent laid out in the median Summary of Economic Projections �SEP�� I think it’s worth acknowledging that if we stay this restrictive for too long, we will start having to worry about the employment side of the Fed’s mandate� 3� Supply developments have been important for both in�ation and output� • Last year we experienced favorable supply developments after several years of negative supply shocks �mostly due to disruptions from Covid�� Supply chain bottlenecks were largely resolved, and the labor supply was quite strong� These were positives for both growth and in�ation in 2023� • Even after the underlying adjustments are done, it can take some time for their e�ects to work their way through the economy� So supply may continue to help us in 2024� • Productivity growth has rebounded in the past year at a rate much higher than we expected� If this continues, it would have profound implications for our policymaking, similar to the experience during the late 1990s when persistently strong productivity gains allowed for a period of faster growth and higher wages without generating higher in�ation� • It’s important to remember that in the presence of favorable supply movements and stronger productivity growth, strong output or employment growth numbers are not reliable indicators of an overheating economy� 4� In�ation expectations have remained in check—evidence of the Fed’s credibility� • Even when the rate of in�ation hit 7 percent in 2022, long-run in�ation expectations did not rise by much� • The Federal Reserve promised to get in�ation back down to target, and it backed up its words by increasing the federal funds rate over 500 basis points� And the markets believed the Fed� Economic research since the 1970s has shown how important central bank credibility is for �ghting in�ation� • In�ation expectations are the natural place for in�ation to settle out after supply adjustments have run their course rather than something higher� That’s part of why I have not agreed with the view that the last mile will be the hardest in the �ght to get in�ation back to target� Quick Links Contact Us • Austan Goolsbee's Biography Your Email Address • The Federal Reserve's Dual Mandate • Upcoming Events Comments • Press Kit • Newsroom Submit

Austan D. Goolsbee (2024, February 13). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_20240214_austan_d_goolsbee

@misc{wtfs_regional_speeche_20240214_austan_d_goolsbee,
  author = {Austan D. Goolsbee},
  title = {Regional President Speech},
  year = {2024},
  month = {Feb},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_20240214_austan_d_goolsbee},
  note = {Retrieved via When the Fed Speaks corpus}
}