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Inflation Battle: Fed's Austan Goolsbee Highlights Prospects of Further Rate Hikes

In the throes of a persistent inflation battle, the Chicago Federal Reserve Bank president, Austan Goolsbee, signals the potential for additional rate hikes this year.

Austan Goolsbee
Austan Goolsbee

Goolsbee Aligns With Rate Hike Predictions

Chicago Federal Reserve Bank president Austan Goolsbee, on Friday, hinted at his agreement with fellow US central bankers about the necessity of a couple more rate increases this year. This move is aimed at curbing the current high inflation rate. "I haven't seen anything that suggests otherwise - this is the golden path," Goolsbee shared in a CNBC interview, underlining the strategy of reducing inflation to 2% without inciting a recession.

A Potential Triumph for the Federal Reserve

Maintaining a 5%-5.25% policy rate last month, the Federal Reserve signaled that two-thirds of its policymakers anticipate at least two more rate hikes before the year's end, given the persistently high inflation. In what may seem like a departure from his earlier skepticism, Goolsbee has acknowledged the potential for these additional hikes, describing it as a "Fed triumph."

Effects of Past Rate Hikes and Market Expectations

Despite the slow pace of hiring in June as reported on Friday, the labor market continues to be robust, with unemployment at a meager 3.6% and hourly wages increasing at a 4.4% annual pace. The full impact of the Federal Reserve's 500 basis points worth of rate hikes since March of last year is yet to be felt, Goolsbee said. He echoed his Fed colleagues in stating that bringing down the high inflation rate is currently the Federal Reserve's primary goal. This objective, he believes, can be achieved without pushing unemployment to recession-inducing levels.

Preparing for the Upcoming Policy Meet

With the next policy meeting set to happen in two and a half weeks, financial markets are pricing in a Fed rate hike. However, Goolsbee hasn't committed to a decision, waiting on crucial data on June's inflation to be released before the meeting.

Goolsbee's Focus: Goods Prices Inflation

Unlike many of his colleagues who believe progress on services, and inflation is vital, Goolsbee is keeping a keen eye on goods prices, which typically remained flat or declined before the pandemic. He pointed out that even before the pandemic, services inflation usually exceeded the Federal Reserve's 2% target. "Let's keep our eye on the goods inflation number to figure out if we're still on the golden path or not," he advised.