MNI: Goolsbee Cautious On Rate Hikes, Rejects Pre-Emptive Cut

Chicago Fed President Austan Goolsbee said Tuesday he's inclined to keep raising interest rates cautiously to restrain inflation, and rejected the idea of pre-emptively cutting to appease investors worried about tensions in the banking system.

Modest tightening of credit markets after the collapse of Silicon Valley Bank could help the inflation fight and require less action from policymakers, Goolsbee said. Recent economic data has still been stronger than expected, services prices more stubborn, and the banking system is in better shape than the 2008 global crisis, he said.

"Given how uncertainty abounds about where these financial headwinds are going, I think we need to be cautious," he said in prepared remarks. "We should gather further data and be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation."

Cutting interest rates in anticipation of a bigger slump in the banking system would be "financial dominance" of monetary policy, Goolsbee said.

"We should be careful with that logic, though, given our trouble getting inflation down in recent years—not to mention the dangers of setting a precedent for giving in any time the market throws a tantrum," he said.

"In today’s environment, there is no conflict between our current monetary policy and these tighter credit conditions, especially if they are part of strengthening the financial system; they can work in tandem to help cool inflation."