Chicago Federal Reserve President Goolsbee stated that despite the strong September employment report, he has not seen convincing evidence that the economy is overheating. Ahead of Thursday's Consumer Price Index (CPI) report release, Goolsbee reiterated in an interview with Bloomberg's podcast that inflation has significantly cooled, and the labor market remains robust. However, he also indicated that officials need to remain vigilant about the risks of strong demand potentially reigniting inflation.
On Thursday, the Chicago Fed chief said that many indicators currently show the job market cooling to a level that economists consider a sustainable full employment, referring to the ratio of job openings to the number of unemployed people, as well as hiring and turnover rates, with the Federal Reserve's goal being to freeze these conditions in place.
Goolsbee expects a series of rate cuts over the next year to a year and a half, stating in an interview, "Over a 12-18 month period, I think we will gradually move towards a stable state on the policy rate."
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In an interview recorded on Wednesday and released on Friday, he said, "I haven't seen any convincing signs that there is a new trend showing that we are stabilizing without full employment and actually returning to a white-hot overheating state."
Last month, policymakers cut rates for the first time since the pandemic began, slashing more than the usual 50 basis points above normal levels, amid signs of weakness in the labor market and inflation retreating towards the Federal Reserve's 2% target.
Data released on Thursday showed that the September Consumer Price Index (CPI) rose more than expected, indicating a pause in the recent process of easing price pressures. However, economists said after the report's release that the Federal Reserve's preferred inflation indicator, the Personal Consumption Expenditure Price Index (PCE), which will be released later this month, may show a more moderate increase, with the index having been close to the target level.
A report released last week showed that employment numbers for the previous month were stronger than expected, allaying some concerns about the job market slowing down too quickly. Goolsbee said, "If we can freeze it there, that would be a lovely picture." He indicated that if the employment report continues to be strong for several months, it would change his view on the appropriate path for interest rates, but he warned against over-interpreting any single data point and paying too much attention to the actions of the Federal Open Market Committee (FOMC) at its upcoming meetings.
Goolsbee said, "That's a piece of cake. The overall situation is that inflation has dropped significantly, unemployment has risen to a level we are satisfied with, and interest rates are far above what almost everyone at the Federal Open Market Committee considers a stable state." He stated, "Do you want interest rates far above what you think they should be? Or would that jeopardize the beautiful outlook?" "That's what I think."