Goolsbee: Fed 'May Be on Hold' but Rates to Fall in Next 12-18 Months

Chicago Fed President Austan Goolsbee has hinted that the Federal Reserve may pause its rate cuts for now, but he still expects interest rates to fall in the next 12 to 18 months. In an interview with CNBC, Goolsbee acknowledged the uncertainty surrounding trade policies and geopolitical tensions, which could lead to a resurgence in inflation. However, he remains optimistic about the economy's resilience and the Fed's ability to navigate these challenges.

Goolsbee's assessment aligns with the broader consensus among Fed officials, who have been closely monitoring the economic outlook and adjusting their projections accordingly. In the September Summary of Economic Projections (SEP), the median projection for real GDP growth in 2025 was 2.1%, indicating a resilient but slowing economy. The median projection for core PCE inflation in 2025 was 2.5%, suggesting that inflation will continue to decline and stabilize around the target.

Goolsbee's cautious approach to rate cuts in 2025 reflects the higher inflation rate expected in 2025 and the anticipation of higher inflation in the future. The Summary of Economic Projections (SEP) revealed that the median FOMC participant is penciling in just two 25 basis points of cuts in 2025, down from the four projected in September. This slower pace of rate cuts reflects the higher inflation rate expected in 2025 and the anticipation of higher inflation in the future.



Despite the uncertainty surrounding trade policies and geopolitical tensions, Goolsbee remains optimistic about the economy's resilience and the Fed's ability to navigate these challenges. He expects rates to fall "a fair bit more" over the next 12 to 18 months, as inflation continues to decline towards the Fed's 2% target. However, he acknowledges that the pace of rate cuts may need to slow down in 2025 to address the uncertainty surrounding trade policies and geopolitical tensions.

In conclusion, Goolsbee's assessment of the economy and inflation aligns with the broader consensus among Fed officials, and his views have implications for future monetary policy. The Fed will continue to monitor the economic outlook and adjust its projections as needed to address any emerging risks or challenges. Investors should remain vigilant and adapt their portfolios accordingly, as the Fed navigates the uncertain economic landscape.