Federal Reserve Bank of Chicago President Austan Goolsbee said he’s hopeful the US is able to avoid a recession despite rapid and steep interest-rate hikes over the past 18 months.
(Bloomberg) — Federal Reserve Bank of Chicago President Austan Goolsbee said he’s hopeful the US is able to avoid a recession despite rapid and steep interest-rate hikes over the past 18 months.
“There’s a widely held conventional wisdom that if you get the inflation rate down more than 5 percentage points you will have to have a big recession to do that,” Goolsbee said Thursday at an event in Madison, Wisconsin. “So far, we haven’t had that recession, I’m still hopeful we can avoid it entirely.”
Policymakers held interest rates steady at their meeting last month but most officials saw the need for one more hike this year. A run-up in bond yields in recent weeks has caused some to say that this may no longer be necessary.
Goolsbee, who votes on monetary policy this year, earlier this month said that disinflation is well under way, though he cautioned that strong housing inflation last month was a “negative surprise” requiring some caution.
On Thursday, he emphasized the need for the Fed to ensure inflation was on track to ease to its 2% goal and for inflation expectations to stay anchored.
“When the inflation expectations become unhinged, the job becomes that much harder, because you have to defeat not just the inflation today,” he said.
Expectations haven’t deviated because of the central bank’s credibility and commitment to doing “whatever it takes” to get inflation back to the target, Goolsbee said.
“The fact that people still believe that makes it easier to achieve that golden path” of combating inflation without triggering a recession, he said.
Goolsbee said the golden path could be threatened by potential economic threats that loom, including high oil prices, a prolonged and expanded autoworkers strike, a meltdown in China and an extended US government shutdown in November.
“It’s definitely not a guarantee,” Goolsbee said. “External shocks have derailed easier soft landings than this one in the past.”
The Chicago Fed chief’s appearance came shortly after Chair Jerome Powell spoke at a separate event Thursday. The Fed chief suggested the US central bank is inclined to hold interest rates steady again at its next meeting while leaving open the possibility of another hike later if policymakers see further signs of resilient economic growth.
(Updates with more comment from Goolsbee in ninth paragraph.)
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