Federal Reserve's Goolsbee: May need to cut interest rates quickly to avoid further deterioration in the labor market

According to the Zhītōng Finance and Economics APP, Charles Evans, President of the Federal Reserve Bank of Chicago, stated that the central bank may need to lower borrowing costs quickly to prevent further deterioration in the labor market, which has been cooling down in recent months.

Evans pointed out that despite the Federal Reserve still addressing inflation issues, several months of data improvement have led him to believe that officials have returned to the goal of lowering the inflation rate to 2%. However, he emphasized that the labor market is "definitely a worrisome area" because maintaining high interest rates while easing price pressures implies a "significant tightening" of monetary policy.

When asked if Federal Reserve officials can control inflation without significantly increasing the unemployment rate, Charles Evans firmly answered, "Yes."

"Just look at the real federal funds rate—the rate minus the inflation rate. It's at its highest level in decades," Evans said in an interview. Evans will vote as an alternate member of the Federal Open Market Committee at the Federal Reserve meeting later this month.

"When do you want to be so restrictive? As I said, if you're worried about the economy overheating, you want to be strict," he said. "The economy is not overheating."

He did not explicitly state when officials should start cutting interest rates.

Federal Reserve Chairman Jerome Powell and other officials have recently stated that the central bank has made some progress in lowering the inflation rate to 2%, but they remain vague about the specific timing of interest rate cuts.

It is widely expected that policymakers will keep the benchmark interest rate unchanged at the eighth meeting in July, the first time since the Federal Reserve first reached the current target range of 5.25% to 5.5%. According to futures market data, investors expect at least two rate cuts by the end of 2024, possibly starting in September.

After inflation stalled at the beginning of 2024, inflation has resumed its downward trend, moving towards the Federal Reserve's target. Consumer inflation indicators cooled in June, with overall prices falling from the previous month for the first time since 2020.

Although the unemployment rate remains relatively low at 4.1%, it has been slightly increasing every month over the past three months. The unemployment rate has risen from a low of 3.4% at the beginning of 2023, raising concerns about the risk of an economic recession.

On Thursday, Dallas Federal Reserve President Robert Kaplan, who spoke on the same day, did not comment on monetary policy.

She stated that the current federal deposit insurance limit may be too low, especially after the turmoil in the U.S. banking system last year. She said that since Congress last raised the limit to $250,000 in 2008, the economy has "grown significantly," and added that if the limit were to increase in line with nominal GDP, today's limit would be close to $500,000. The need for protection following the collapse of Silicon Valley Bank and Signature Bank also indicates that the current limit is too low. Kaplan pointed out that Congress will ultimately make a decision on this issue