Chicago Fed President Austan Goolsbee said that in the face of recent pressure on the banking industry, the Fed should be cautious about raising interest rates. He is the first senior Fed official to express more clearly that it may need to suspend interest rate increases at the next interest rate meeting. He believes that reduced bank lending will help calm inflation and reduce the scope for monetary policy to work:
At a time when the financial system is under stress, sound monetary policy requires careful and patient assessment of the potential impact of financial stress on the real economy.
Given the uncertainty surrounding the direction of these financial sector headwinds, I think we need to remain cautious. We should collect more data and be careful not to raise rates too aggressively until we see how much the headwinds are doing to us in lowering inflation.
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