US Markets
Tuesday, November 7th, 2023 2:50 pm EDT
Key Points
- Soft Landing Possibility: Chicago Federal Reserve President Austan Goolsbee believes that a “soft landing” for the economy is still achievable as the central bank strives to combat inflation without causing significant harm to the economy. He referred to this scenario as the “golden path,” where inflation could be reduced without triggering a recession. Goolsbee highlighted the goal of having modestly higher unemployment while decreasing inflation.
- Current Economic Situation: The Federal Reserve recently decided to hold interest rates steady, marking the second consecutive meeting where the Federal Open Market Committee chose not to raise rates, despite a series of 11 rate hikes in the past. Core inflation, as measured by the personal consumption expenditures price index, currently stands at 3.7% annually, significantly above the Fed’s 2% target. Goolsbee emphasized the progress made in reducing inflation, even comparing it to historic instances of rapid inflation drops.
- Challenges of Achieving a Soft Landing: Goolsbee acknowledged the difficulty of achieving a soft landing amid a historic surge in inflation, emphasizing that such a drop in inflation without a significant recession is a rare occurrence. He stressed the importance of data dependency for the Federal Reserve’s future decisions, aligning with Chair Jerome Powell’s comments about the central bank’s commitment to making appropriate decisions based on evolving circumstances. Goolsbee highlighted the complexity of managing inflation without causing a major economic downturn
Chicago Federal Reserve President Austan Goolsbee expressed optimism about achieving a “golden path” amid the current economic challenges, where the Fed aims to combat inflation without causing a significant economic downturn. Goolsbee highlighted the possibility of reducing inflation without a recession, referring to a scenario where unemployment would rise only modestly while inflation decreases substantially. He emphasized that the recent drop in inflation has been a significant accomplishment.
The Federal Reserve has maintained interest rates steady, following a series of 11 rate hikes. Despite core inflation running at 3.7% annually, well above the Fed’s 2% target, Goolsbee noted the substantial drop in inflation rates, comparing it to historic instances such as the fastest drop in inflation in 1982. The current economic landscape has seen strong GDP growth, with the economy expanding at a 4.9% annualized rate in the third quarter.
However, Goolsbee acknowledged the challenge of achieving such a significant drop in inflation without a notable recession, highlighting the rarity of such an occurrence historically. He stressed the importance of data dependency for the Fed’s decision-making going forward, echoing Chair Jerome Powell’s recent comments that the central bank’s decisions would be guided by evolving circumstances and what is deemed appropriate at the time. Goolsbee, therefore, emphasized the importance of navigating a course that mitigates inflation without triggering a major economic downturn.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/07/feds-goolsbee-says-golden-path-of-a-huge-drop-in-inflation-without-a-recession-is-still-possible.html
