Chicago Fed President Goolsbee on Monday laid out his dovish reasons for considering a rate cut in the coming months. Goolsbee does not have a vote on the Federal Open Market Committee (FOMC) this year, but will take over as a voting member next year. Among all the Fed governors and regional Fed presidents, Goolsbee is considered the most "dovish" one.
Goolsbee told CNBC in an interview that if there are new signs of stress in the economy, that should at least make the Fed consider whether it needs to keep the policy rate at its current level.
He pointed to “several warning signs,” including that “consumer spending appears to be cooling,” a recent increase in unemployment claims and a spike in delinquencies on consumer credit card debt.
He also noted that at the same time, the Federal Reserve's policy rate, adjusted for inflation, is the highest in decades, putting downward pressure on the economy.
Goolsbee welcomed the cooling of inflation data and said it might be appropriate to start thinking about whether policy is weighing too heavily on the economy. If there are more good inflation reports like the recent May consumer price index (CPI) and a slowdown in other areas of the real economy, he said, "then you have to start questioning whether we should continue to maintain the restrictive measures that we have been doing."
He said the Fed raised its benchmark interest rate to current levels to guard against the risk of overheating the economy, and he said recent signs of weakness at least suggest it is not overheating.
As for the future anti-inflation outlook, Goolsbee said the Fed's confidence in the return of inflation to the 2% target will increase slightly, and slowing inflation data will open the door to more relaxed policies.
He also cited a growing divergence between the Fed’s policy and that of other central banks, such as the European Central Bank, which have already begun cutting interest rates. “It’s worth thinking about how restrictive our policy is, given what’s happening in all the other advanced economies,” he said.
However, in addition to economic factors, what is special about the Fed's interest rate path this year is the US election in November. Some people believe that the Fed's decision may be influenced by politics.
Don't expect the Federal Reserve to cut interest rates before the November election, Carlyle Group co-founder and co-chairman David Rubenstein said on Monday.
“The Fed generally doesn’t want to get involved in politics,” Rubenstein told CNBC’s “Squawk Box.” “I’ve always said the Fed is unlikely to cut rates before the election because it would just cause too much political turmoil.”
He noted that the Fed may be aware that they would be "severely criticized" by former President Trump if they began cutting rates before the election. He added: "I think the market is more likely to be right than wrong when it predicts that a rate cut may happen after the election."
Traders are now pricing in a nearly 78% chance of a rate cut in November, up from around 66% in September, according to the CME Group’s “FedWatch” tool. The Fed’s latest dot plot, released earlier this month, showed the central bank will cut rates once this year, down from three in its March forecast.
Rubenstein did not endorse a specific presidential candidate, noting that he would not publicly endorse anyone. He said that was because he had held various public offices, such as chairman of the Kennedy Center, where he sought grants from across the political spectrum. He added that after years as a Democrat, he had changed his party registration to an independent.
Article forwarded from: Jinshi Data
