FED: Chicago's Goolsbee: Uneasy With Too Much Cut Frontloading
Chicago Fed President Goolsbee (2025 FOMC voter) told reporters (including MNI) Thursday that he was "uneasy" with frontloading rate cuts: "The reason why I'm uneasy with too much frontloading of cuts is because we still need to get the information and have confidence that the rise of the inflation rate, after four and a half years of being above the target, we have to be convinced that that's transitory."
- In the first Fed commentary after the strong upward revision of Q2 (and overall H1 GDP), Chicago Fed President Goolsbee noted that (as quoted by Axios): "If excessively restrictive rates were pushing the economy toward recession, you would think that the cyclical and interest rate sensitive parts of the economy would be showing that canary in the coal mine style — and they do not seem to be for the most part...the fact that you saw some greater strength in the numbers this morning, I don't think that yet changes my basic view of the throughline of steady growth."
- He noted that keeping rates steady while inflation rises is tantamount to a decline in the real interest rate, thereby passively loosening monetary policy.
- Regarding that inflation and how it impacts the rate path forward, he reiterated that rates are around 100-125bp from neutral based on the FOMC's longer-run median estimate, but “the answer to the question of when and how rapidly we can get down from where we are right now to where I think the settling point is will, in large measure, be determined by the success at demonstrating that inflation is not going to go up a lot, that the tariffs are going to stay in their lane and are not going to be persistent. If we start to see the opposite happening then I would be uneasy in doing too much in the way of cutting."
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
RATES: RBC Recommend Receiving Dec25 SONIA vs ESTR
RBC earlier today advised receiving Dec 25 BoE vs paying ECB.
- Medium conviction (50k/sdev) with entry level -1bp, target -20bp and stop loss 10bp.
- “Market pricing is almost identical for further rate cuts from the ECB and BoE at around 10bp for the rest of the year.”
- “We strongly believe out of the two central banks the BoE is more likely to cut again and therefore like the risk/reward in paying the ECB December meeting and receiving the BoE December meeting. We particularly see scope for the BoE market pricing to shift, if there is an easing in some of the UK data.”
- “A spread trade provides protection against a strong global risk-on/off move.” They only see the ECB cutting this year if there is a global shock.
- “We look to take profit at -20bp, which would likely reflect the scenario where a full BoE cut is almost fully priced and ECB market pricing moves towards 0bp. We think this is very possible if we have a couple of dovish data prints out of the UK. We set a stop loss at 10bp, to cover us in the situation where the market momentum behind a further ECB cut builds, but the BoE drifts closer to no cuts.”
US: Republican Concerns Over Inflation Recede
Republicans are less likely than Democrats to see inflation as a 'very serious' problem, according to a new YouGov Survey, with GOP voters registering a sharp decline in inflation concerns since August 2024.
- YouGov: “Republicans are much less likely than they were in August 2024 to see many of the problems asked about as very serious. 48% say inflation is a very serious problem, down from 89% who said this a year ago. They also are far less likely to see election fraud (33% vs. 59%) and unemployment (19% vs. 40%) as very serious problems now as they were a year ago.”
- YouGov continues: “For Democrats, it’s the opposite — they’re more likely than they were a year ago to perceive many issues as serious problems. They are more likely now than in August 2024 to describe as very serious problems inflation (71% vs. 45%), lack of public transportation (35% vs. 26%), and corruption (72% vs. 51%).”
- According to Silver Bulletin, inflation remains Trump's weakest issue with voters. Per SB's aggregated polling, Trump has a -25% net approval on inflation, compared with -15% on trade, -12% on the economy, and -3.5% on immigration.
Figure 1: “How serious of a problem do you [Republicans] think the following are in the United States? (% who say "a very serious problem)”
Source: YouGov
US: FED Reverse Repo Operation
RRP usage retreats to $28.574B this afternoon from $47.567B yesterday -- compares to $22.344B on Tuesday, Aug 19 - lowest since April 5, 2021. Total number of counterparties at 16. This year's high usage of $460.731B on June 30.
