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Investing.com -- Austan Goolsbee, President of the Federal Reserve Bank of Chicago, addressed the Economic Club of New York today. During a fireside chat, Goolsbee emphasized that the Federal Reserve's timeline does not necessarily align with market expectations, and that the central bank's goal is to find a consistent path, rather than make hasty decisions.
Goolsbee mentioned that the Federal Reserve's role is particularly crucial during volatile times, where cautiousness is key. He pointed out that the hard data on the economy looks positive and that the unemployment rate is around full employment, indicating a healthy labor market.
Goolsbee also noted that the economy has been moving towards a stable path, which he referred to as the "golden path". He highlighted the growing importance of soft data due to its less lagging nature compared to hard data.
Discussing the impact of tariffs, Goolsbee argued that short-run tariffs would not significantly change the economy's path. However, he cautioned that if confidence is lost, it could create economic problems. He also acknowledged the presence of considerable anxiety within the Chicago Fed district, including fears of a return to pandemic-era economic conditions.
Goolsbee described a tariff as a stagflationary shock, which poses a challenge for the Federal Reserve as there is no generic playbook to respond to such a shock. Despite these challenges, he observed that the economy has stable full employment and inflation is trending downwards.
Goolsbee suggested that overcoming current uncertainties could help clarify the Federal Reserve's policy path. He predicted that 12 to 18 months from now, rates will be lower than they are today. He also stressed the importance of the level of long-term inflation expectations, which he described as mixed at present, but still pretty anchored in the long term. Goolsbee concluded his speech by saying that if uncertainty is resolved, rate cuts are still a possibility.
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