Skip to content

Goolsbee Advocates for Caution in Interest Rate Hikes Amid Banking Stress

Chicago Fed President Austan Goolsbee urged the Federal Reserve to be cautious about raising interest rates due to recent banking stress. He noted that decreasing bank lending could help address inflation, reducing the need for monetary policy action.

Austan Goolsbee, Chairman of the Federal Reserve Bank of Chicago
Austan Goolsbee, Chairman of the Federal Reserve Bank of Chicago

Importance of Prudence and Patience

Goolsbee emphasized the need for prudence and patience in assessing the potential impact of financial stress on the real economy. These were his first extensive comments on the policy outlook since becoming Chicago Fed President in January.

Inflation Concerns Persist

Despite the Fed's interest rate hikes last year, inflation remains over twice its 2% target. Goolsbee acknowledged the strong job growth and, based on this data alone, suggested that more aggressive policy tightening could be warranted.

Impact of Bank Failures

Goolsbee highlighted the failure of two regional U.S. banks in mid-March, which triggered financial stress with a potential material impact on the real economy. The Fed must consider these factors when making decisions on rate hikes.

Proceeding with Caution

Given the uncertainty surrounding financial headwinds, Goolsbee advised caution in raising rates too aggressively. He emphasized the importance of gathering more data to determine the extent of these headwinds' impact on inflation.

Comparison with Colleagues

Goolsbee's call for patience appears more dovish than some of his colleagues' views following the Fed's March 22 rate hike. However, he clarified that he does not support rate cuts, as the market is currently anticipating the latter half of the year.

Utilizing Supervisory and Regulatory Tools

Goolsbee argued that the central bank should prioritize supervisory and regulatory tools to address banking system stress, given the difficulty in reducing inflation and the risk of appearing to capitulate to market pressures.