MNI BRIEF: Goolsbee Says Fed Will Not Accept Fiscal Dominance

Federal Reserve Bank of Chicago President Austan Goolsbee said the central bank's mandate does not include setting interest rates with a consideration of how it affects fiscal spending, and added that new tariffs unveiled by President Trump have further muddied the economic outlook. 

"To the extent that now there are people arguing, it's like they're advocating the fiscal dominance position, that the Fed should cut the rates to make it easier/less costly to run more debt," Goolsbee said on a Moody's Talks podcast released Friday. "Let's be a little careful with fiscal dominance ... There's not a great history around the world of fiscal dominance, monetizing the debt as being real consistent with the dual mandate," he added. 

"In the pure theory of the game of chicken between a central bank and a fiscal authority, I do think it's pretty important for the Fed's reputation and Fed credibility that we're not engaged in a - we're not pre-committing to that, we're gonna make it as easy as possible," he said. "We should be looking at our mandate and committing to the world. 
What we do is we look at prices and we look at employment, and that's what the law tells us we have to do."

With new uncertainty around tariff policies, officials should wait to get a clearer read on the economy, Goolsbee said. "We just can't get a break. I mean, now we're going to announce a new round of tariffs, and we're going to raise it on copper and intermediate goods." (See: MNI INTERVIEW: Fed's Daly: Time To Think About Adjusting Rates)