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.
