Federal Reserve's Goolsbee: Interest rates may be much lower in the next 12 to 18 months

Chicago Federal Reserve President Goolsbee stated that as long as inflation continues to decline towards the Federal Reserve's 2% target, interest rates will be significantly lowered in the next 12-18 months.

However, Goolsbee agreed with Federal Reserve Chairman Powell's view that policymakers are not in a hurry to cut interest rates.

Goolsbee said, "As long as we continue to move towards the 2% inflation target, interest rates will be much lower than they are now in the next 12 to 18 months."

The head of the Chicago Fed indicated that it makes sense to slow down rate cuts in the face of uncertainty about what the neutral rate is. The neutral rate refers to the interest rate level that neither stimulates nor suppresses the economy.

"If there is disagreement about the neutral rate, then it makes sense to slow down the pace of reaching that level at some point," he said.

Goolsbee added that interest rates are still at restrictive levels, so there is room to lower borrowing costs to a more neutral level.

Last week, policymakers lowered rates by 25 basis points, following a larger cut in September. Several Federal Reserve officials, including Powell, have advocated for a cautious and gradual approach to further rate cuts in the face of a strong economy.

Data released earlier on Friday showed that U.S. retail sales increased in October, primarily driven by auto sales. Additionally, significant upward revisions to the previous month's data indicated that consumers entered the final months of the year with strong momentum.

Following the data release, traders reduced the probability of a Federal Reserve rate cut in December to about 50%.

Powell stated on Thursday that the economy is not sending "any signals" indicating that the Federal Reserve needs to rush to cut rates, allowing officials to "cautiously" pursue further adjustments.

The pace towards the Federal Reserve's 2% inflation target has also slowed. CPI data released earlier this week showed that the consumer price index (excluding food and energy) rose 0.3% month-on-month for the third consecutive month.

Moreover, Trump's tariff policy may cause U.S. inflation to heat up again, forcing the Federal Reserve to potentially readjust its rate path.

Deutsche Bank Chief U.S. Economist Matthew Luzzetti said, "We expect Trump's tariffs to be implemented."

Luzzetti believes that data from Trump's first term is useful in predicting what might happen this time.

He stated, "Tariffs have indeed put pressure on the economy," he said. "They triggered a trade war, and financial markets reacted very negatively. We have clear evidence that tariffs have indeed worked as we expected, causing negative supply shocks to the economy in the short term."

Since the election results were announced last Tuesday, the market has been ignoring tariff risks. Following the news of Trump's victory, tariff risks have risen to historic highs