Goolsbee & Bostic Think Fed Should Pause In June To Assess Economy

Atlanta Fed’s Bostic (alternate FOMC member) and Chicago Fed’s Goolsbee (FOMC member) participated in a discussion on the economic outlook on Tuesday evening. Both of them think that the Fed should pause at its June 14 meeting to allow time to assess the impact of previous tightening but also the effect of higher banking funding costs on the economy.

• According to Bostic, there is still some way to go to “defeat inflation”, particularly because rates have only recently reached the level that is restrictive. He also doesn’t share the market view on how quickly inflation will fall. The March Fed forecasts have core PCE inflation at 3.5% this year before easing to 2.5% in 2024, implying that rate cuts this year are unlikely.
• He also noted that the Fed hasn’t got to the “hard part” yet and that policy must remain resolute in fighting inflation. After a pause, the Fed can decide what to do after gathering more information on economic developments.
• Goolsbee said that he was leaning towards pausing rate hikes at the June meeting, as the impact of tightening to date was yet to be felt. The May move had been a close call for him. He stated that “you don’t land the plane nose down”. He still believed though that there was a chance to get inflation down without a recession.
• In terms of the Fed’s balance sheet, Bostic said that the balance sheet runoff hadn’t led to disruptions, while Goolsbee noted that there should be a high bar to changing the Fed’s plan for the balance sheet.