Chicago Fed President Goolsbee described the latest inflation data as “excellent,” adding that they provided the evidence he had been waiting for to convince him that the Fed is on track to its 2% target.

Goolsbee declined to offer guidance on the timing of the first rate cut. Still, he stressed the importance of decelerating housing inflation in recent months, calling it "deeply encouraging." He has been watching that area closely to determine when the Fed should cut rates. "The committee issued a statement saying we don't anticipate cutting rates until we have more confidence that we are on a path to 2 percent," Goolsbee said in a conversation with reporters Thursday. "My view is that the path to 2 percent is where it is right now."

Goolsbee's comments followed a report earlier Thursday showing a key measure of consumer prices rose in June at the slowest pace since August 2021. The slowdown was due in part to a long-awaited cool in housing costs, which Goolsbee has said is key to achieving the Fed's inflation goal. Investors all but firmed their bets that the Fed will cut interest rates at its September meeting after data showed a decline in all categories of inflation. Policymakers meet on July 30-31.

Goolsbee, who will vote as an alternate member of the Federal Open Market Committee (FOMC) at the Fed's meeting later this month, stressed that the Fed is actually tightening policy by not adjusting interest rates. He said: "If you think the economy is overheating, you will take actual tightening measures. But in my opinion, this is not a sign of an overheated economy."

Two other policymakers also spoke after the latest June consumer price index (CPI) data was released. San Francisco Fed President Mary Daly said that given the recent employment and inflation data, interest rates may need some adjustments, but she did not propose a specific timetable for rate cuts. "At this point, it is clear that the risks to our stated goals of price stability and maximum employment are well balanced, and monetary policy is working," Daly told reporters on a conference call after the June CPI release on Thursday. "Based on the information we have received to date, including data on employment, inflation, GDP growth, and the economic outlook, I think it is likely that some policy adjustments will be needed."

St. Louis Fed President Moussallem said he needs more convincing evidence to support a rate cut. He said the CPI data showed "encouraging further progress in reducing inflation," but he wants more evidence that price pressures have eased. Moussallem said last month that it would take more than a few months to get data to support a rate cut.

While Goolsbee’s comments suggested he was ready for a rate cut as soon as possible, he also said he might not dissent in favor of a rate cut at the July meeting if other policymakers vote to keep rates unchanged.

Goolsbee said he was open to pausing or continuing a series of rate cuts after the first one, and stressed that the path of interest rates would depend on inflation data.

Fed officials, spooked by higher-than-expected first-quarter inflation data, have kept interest rates at their highest levels in more than two decades for a year. The resumption of cooling inflation, combined with a cooling labor market, could go a long way toward providing the evidence officials seek to convince them that price growth is on track toward their 2% target.

Fed Chairman Jerome Powell told lawmakers earlier this week that he believes inflation is receding but is not yet confident that it will slow consistently to the central bank's 2% target. However, he also said officials are increasingly aware of the potential impact of high borrowing costs on the job market. The U.S. unemployment rate, while still low at 4.1%, has risen each of the past three months.

Goolsbee said the job market remains "pretty solid," but the fact that the unemployment rate rose from 3.4% is worrisome. "The labor market data doesn't suggest that the economy is on the brink of a recession, so you don't have to panic," he said.

Mousallem also called the labor market "strong" and said the Fed has time to assess more data before deciding whether to adjust policy. He said the Fed's current policy stance is "restrictive" but not excessive.

Article forwarded from: Jinshi Data