Chicago Fed President Goolsbee said policymakers should cut interest rates if U.S. inflation continues to fall back toward their 2% target.

“We are on a path to 2% inflation, and if you hold rates steady as inflation is falling, you are tightening, so you should make a decision rather than continue to hold,” the Chicago Fed president said in an interview on Tuesday.

Goolsbee's comments came after data last week showed the Federal Reserve's preferred inflation gauge, PCE, rose just 0.1% in May from the previous month, the lowest level in six months.

Fed officials have kept interest rates at their highest levels in more than two decades since July and have said they need to see more evidence that inflation is moving toward their 2% target before lowering borrowing costs.

"We got to where the interest rate is now when inflation was over 4 per cent and now inflation is down to closer to 2.5 per cent, so if you're holding on to that rate when inflation is down, you're tightening."

It is worth noting that Goolsbee does not have a vote this year, but due to the retirement of Cleveland Fed President Mester, he will briefly exercise his voting rights as Cleveland Fed President at the July meeting.

He added that inflation appears to be returning to target levels. "We had a setback in January, but now we're getting a series of improving inflation data. There have been some warning signs in the job market, and if employment starts to collapse or if the economy starts to weaken, you have to have progress on the price side to balance that out. The unemployment rate remains low, but it has been moving up."

Later on Tuesday, Fed Chairman Powell will speak at a panel discussion with European Central Bank President Christine Lagarde and Brazilian Central Bank President Campos Neto. Powell said at a press conference after the FOMC meeting on June 12 that "the inflation data in the second half of last year were very, very good, but there was a pause in the first quarter. What we concluded from this is that it may take us longer to get the confidence we need to start easing policy."

The article is forwarded from: Jinshi Data