MNI: Fed's Goolsbee Seeks More Surety Tariff Impacts Limited

Federal Reserve Bank of Chicago President Austan Goolsbee said Wednesday he is looking for further signs that tariffs' impact on prices will stay limited before lowering interest rates, adding the U.S. economy is not on the brink of recession. 

"I want some more surety that's not going to be a persistent inflation shock, but I can get it. And as I say, what underlies the economy would naturally lead to lower rates," he told reporters on a call after speaking to the Greater Springfield Chamber of Commerce in Springfield, Ill. 

"If the data suggest the tariff impact is in the "11% of GDP" lane, and the overall impact on inflation is modest, that would be an informative state of affairs," he said. "The more convincing it is that we’re on the path of 2% inflation the faster I think we can move."  

INFLATION BREADTH 

He's examining the components of CPI and PPI to see if impact from tariffs are spreading from one industry to the next, and if services inflation continues rising after coming in above analyst expectations last month. Core services CPI excluding housing climbed 0.479% in July, the BLS reported this week.

"We had a couple months of quite mild and favorable inflation readings, and now we’ve gotten one month where there are some concerning elements. But these are all noisy series, so if you collectively roll into the fall -- whether it's September, November, December -- and you've had multiple months of readings that give comfort that this is not a thing spreading out of its lane, that’s a pretty stable place. If U is getting close to u-star and pi is getting close to pi-star, then I can think R can start heading back to r-star, which I think is a fair bit below where we are," he said.   

On the labor market side, layoffs remain low and job vacancy rates as high as they were in 2018-19, Goolsbee said. 

"If you think this is a normal business cycle and the beginning of a recession, then you've got to explain why is the layoff rate as low as it is," he said. (See: MNI INTERVIEW: Fed September Cut Not Assured - Rosengren)