Chicago Federal Reserve President Optimistic About Controlling Inflation Without Recession

Chicago Federal Reserve President Optimistic About Controlling Inflation Without Recession

Chicago Federal Reserve President, Austan Goolsbee, expressed confidence that inflation can be controlled without the need for a recession, despite the likelihood of further interest rate increases. Goolsbee believes that the ongoing job growth is a key factor in the Fed’s plan to restore price stability while avoiding any negative impact on the economy. He referred to this approach as the “golden path” and stated his hope to avoid future recessions altogether.

Predictions of Credit Contraction and Potential Recession

Economists, including those working at the Federal Reserve, have predicted that credit contraction may lead to a modest recession later in 2023 or early in 2024. However, the jobs market, which is considered a crucial component of the economy, is showing only slight signs of slowing down. Although June’s nonfarm payrolls report fell short of Wall Street estimates with a growth of just 209,000 jobs, the unemployment rate of 3.6% indicates the resilience of the overall economy. Goolsbee described the jobs market as “outstanding” and believes it is gradually reaching a balanced and sustainable level.

Challenges with Inflation

Despite the positive outlook on job growth, inflation remains a concern as it has consistently exceeded the Federal Reserve’s target of 2%. The Federal Open Market Committee (FOMC) officials, in their updated quarterly projections after the June meeting, expressed the likelihood of at least two more quarter percentage point rate hikes by the end of 2023. Goolsbee shares the view that inflation is gradually decreasing but acknowledges the possibility of further tightening measures being implemented.

Timing and Impact of Rate Hikes

The Federal Reserve’s policies are known to operate with a lag, meaning that the effects of the ten rate hikes since March 2022 may not have fully manifested in the economy yet. Goolsbee remains undecided about whether there should be another rate hike at the upcoming FOMC meeting on July 25-26. He anticipates there will be some modest increases in the future but also acknowledges that a significant portion of the necessary adjustments has already been made and the impact is still being observed.

In summary, Goolsbee, as the Chicago Federal Reserve President, is optimistic about the prospect of controlling inflation without resorting to a recession. He emphasizes the importance of job growth in achieving price stability and expresses confidence that the current path is leading towards the desired outcome. However, he acknowledges the challenges of high inflation and the likelihood of additional interest rate hikes. Goolsbee believes that the Federal Reserve’s actions will eventually bring inflation down to the target level without causing a recession, although the timing and impact of these measures are still being evaluated.


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