Austan Goolsbee, the president of the Chicago Federal Reserve, expressed optimism that the Federal Reserve might approach a neutral impact on the economy with its monetary policy by the end of next year.
In a recent discussion with journalists at the Chicago Fed, Goolsbee explained that the pace at which the Federal Reserve will reduce interest rates depends on the evolving economic conditions.
Goolsbee refrained from providing a precise figure for the neutral rate but mentioned that a level around 3% seems reasonable. This rate is notably lower than the current range of 4.5% to 4.75% and aligns with the median projected by Federal Reserve officials during their September meeting.
The Federal Reserve is anticipated to decrease interest rates by a quarter percentage point at the forthcoming meeting on December 17-18. During this meeting, officials are also expected to share their projections for the economy and rate policy for the upcoming year.
Goolsbee, who is set to become a voting member on interest rate policy in 2025, described the current state of the economy as being at or near full employment and on track to achieve the Fed’s 2% inflation target. He suggested that the Fed might continue to cut rates gradually while monitoring economic progress to determine an appropriate stopping point.
He indicated that a significant shift in the Fed’s approach over the next year would require unexpected changes, such as inflation veering off its trajectory toward 2% or the job market showing signs of overheating.
Recent employment data supports the view that the economy has largely normalized since the pandemic. A report highlighted that U.S. firms added 227,000 jobs in November, with the unemployment rate reflecting full employment and monthly job gains similar to pre-pandemic levels.
Goolsbee anticipates that the Federal Reserve will engage in a series of critical discussions in the upcoming months to decide the extent and pace of further reductions in the benchmark policy rate.
Additionally, Goolsbee expressed increasing confidence that recent improvements in labor productivity could be sustained, potentially influencing inflation forecasts, growth potential, and the impact of labor shortages due to demographic shifts or immigration policy changes.
He cited anecdotal evidence from businesses investing in labor-saving technologies as a response to hiring challenges, suggesting this trend could have broader implications for various industries and monetary policy.
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