MNI BRIEF: Fed's Goolsbee - Can't Bank On Future Productivity

Strong U.S. productivity growth has allowed workers' wages to rise without generating inflation, but policymakers cannot count on continued gains in order to lower rates, and doing so could risk fueling asset bubbles, Chicago Fed President Austan Goolsbee said Friday. 

"It's a little more complicated than just, hey, if productivity growth is higher than let's make the rates lower. Because if you're a person who thinks about r-star and what the settling rate is, if the growth rate is higher, permanently, that actually connotes rates need to be higher, not lower," he said during Q&A at a Chicago Fed event. 

"The legacy of the 1996 decisions by the Fed are not as clear in that it might have fueled the bubble," he said, referring to former Fed Chair Alan Greenspan's decision to keep policy loose in the face of a late 1990s tech boom. "It does give you a little worry if you see the valuations going crazy based on future productivity." (See MNI: Fed Biased To Ease With Focus On Jobs - Ex-Officials)