MNI: Goolsbee: Policy Uncertainties Warrant Fed Wait-And-See
MNI (DETROIT) - Uncertainties on trade and fiscal policy plus geopolitical and weather disruptions make it more difficult to judge how the U.S. economy is evolving and warrant a patient stance on monetary policy, Federal Reserve Bank of Chicago President Austan Goolsbee said Thursday.
"The more dust in the air that make it hard to calibrate what the conditions are, the more we have to wait and see," he told reporters on the sidelines of an automotive conference hosted by the Fed bank.
"I still think ultimately where we’re going to land is a fair bit lower but the speed a little shallower," he added. "My view of the economy was it was settling at full employment, growth remained strong, and we’re on a path back to 2% inflation in both aggregate and monthly numbers. If conditions keep going like that rates will be a fairly lower than today.
SUPPLY SHOCKS
U.S. President Donald Trump's series of trade actions against Canada, Mexico and China in his first weeks in office constitute supply shocks that monetary policymakers would in theory look through. But a key lessons of the Covid-19 pandemic is that transitory shocks have a way of becoming more permanent, Goolsbee said.
"If you’re at full employment, there’s a risk the economy heats up from that spot and you’re into an overheating regime where the central bank should be concerned about overheating and finishing the job of getting us back to 2%," he said.
At the same time, the possibility that "the labor market deteriorates and we should be collectively thinking through how fast rate cuts should be is also on the table," he said.
He said he's placing "special emphasis" on reading the details of the PPI report as well as talking to business and industry contacts, asking how fast tariffs would affect their costs and whether they would pass those costs on.
"On the ground data sniffing is the only way to answer that," he said. "The longer the supply chain the more complex the dynamics." (MNI INTERVIEW: Lots More Coming On Trump Tariffs - Eissenstat)