MNI BRIEF: Next 3 Months Of Data Key To '25 Fed Cuts- Goolsbee

Whether U.S. interest rates will fall this year depends on how trade policy and data evolve over the next three months, Federal Reserve Bank of Chicago President Austan Goolsbee said Tuesday. 

"The answer to that question depends heavily on what's going to happen in the next three months, to the data on prices and to the data on employment. There's a lot of policy uncertainty," he said.  "After all this dust clears out of the air, is life where we were in February, March? Where we were coming into April 2 was stable full employment, with the prices coming down to the 2% target, and therefore rates would be a fair bit below where they are today.

"But with the uncertainty, I can't express that with too much confidence, because who knows if we wake up tomorrow and the tariffs are going back to 50% on the world. There are a lot of domestic production that's going to suffer and have to figure out how to deal with that," he said. 

Tariffs will boost both unemployment and inflation, and "there's not an automatic playbook of what does the central bank do if both sides get worse at the same time," Goolsbee said. 

Inflation data so far haven't reflected the impact of tariffs, he said. Some business leaders in the Chicago Fed district say they expect to pass through cost increases 100%, which should show up in price data within the next couple months, he said. However, whether higher prices lead to a slowdown "won't show up for a while," he said. 

Of the seven states most exposed to tariffs, the Chicago Fed district has four: Iowa, Michigan, Indiana and Kentucky, he noted. 

"Are the tariffs going to have a small impact, or are the tariffs going to have a large impact? We gotta wait and see." (See: MNI INTERVIEW: Fed Will Face ‘Tough Calls’ In H2-Holtz-Eakin)