Chicago Federal Reserve President: Monetary policy is at a "critical moment," and the pace of future interest rate cuts may slow down

According to the Zhitong Finance APP, Austan Goolsbee, President of the Chicago Federal Reserve, stated on November 16 that the U.S. economy is in a transitional phase, and it is a "critical moment" for monetary policy. As 2023 comes to a close, the distortions caused by the COVID-19 pandemic and the subsequent economic rebound are gradually fading.

Goolsbee made his remarks while attending a Central Indiana Corporate Partnership event in Indianapolis. He pointed out that the current stage of the U.S. economy may require further interest rate cuts, but the pace may slow compared to this fall.

"I always say that during economic transitions, the hardest task for central banks is timing," Goolsbee said. He believes that the U.S. labor market is approaching a state of "stable full employment," and inflation is gradually aligning with the Federal Reserve's annual target of 2%. This development is an ideal state for the economy, and policymakers hope to avoid excessive economic slowdown.

Goolsbee indicated that the Federal Reserve may need to adjust interest rates to a suitable neutral level. He emphasized, "We do not need to reach this goal immediately, but from a one-year perspective, I believe interest rates will be significantly lower than they are now."

According to the Federal Reserve's latest decision, the target range for the federal funds rate was lowered by 0.25 percentage points to 4.5%-4.75% on November 7. This followed a 0.5 percentage point reduction in September, marking the first adjustment after the Federal Reserve maintained rates for over a year. Goolsbee expects that this gradual pace of reduction may further slow as rates approach the target level.

Federal Reserve officials generally describe the target rate as a neutral rate, which is a theoretical level that neither stimulates nor suppresses economic activity. However, this level is not clearly visible and needs to be assessed through economic performance. Many economists believe that the current neutral rate in the U.S. is higher than it was a few years ago due to factors such as accelerated productivity growth.

Goolsbee explained, "When there is uncertainty or disagreement about the ultimate level of interest rates, it may make more sense to slow the pace of rate cuts as we approach the target."

According to interest rate futures market data from November 16, traders generally believe that the Federal Reserve may again lower the federal funds rate target range by 0.25 percentage points at the December meeting, while the likelihood of pausing rate cuts is slightly lower. The market predicts that by the end of 2025, the federal funds rate will have been cumulatively reduced by 0.75 percentage points.

Goolsbee has served as President of the Chicago Federal Reserve since January 2023 and will participate in the voting decisions of the Federal Open Market Committee (FOMC) in 2024. His views indicate that the Federal Reserve will place greater emphasis on precise adjustments during economic transitions when formulating future interest rate policies to achieve the goals of maintaining economic stability and controlling inflation