Federal Reserve's Goolsbee: Employment report indicates stabilization in the labor market, no signs of economic overheating
Federal Reserve official Goolsbee stated that the latest employment report shows the U.S. labor market is stable at full employment levels, with no signs of economic overheating. He expects interest rates to decline significantly in the next 12 to 18 months, provided inflation remains stable. In December, non-farm payrolls increased by 256,000, and the unemployment rate fell to 4.1%. Although Wall Street has adjusted its predictions for Federal Reserve rate cuts, Goolsbee believes that if economic conditions remain stable, interest rates will fall to neutral levels
According to the Zhitong Finance APP, on Friday, Charles Evans, a voting member of the Federal Open Market Committee (FOMC) and President of the Chicago Federal Reserve, stated that the latest employment report indicates that the U.S. labor market is stabilizing at full employment and is not a sign of an overheating economy.
Evans maintained his view that as long as inflation does not rise, interest rates will "decline significantly" over the next 12 to 18 months. He noted that the pace of rate cuts will depend on economic conditions.
Evans stated, "This is a strong employment report, and it reassures me that the labor market is stabilizing at full employment levels." He added that this "does not indicate an overheating economy."
Data released on Friday showed that non-farm payrolls increased by 256,000 in December, significantly exceeding market expectations and reaching the highest level since March of last year, while the unemployment rate unexpectedly dropped to 4.1%.
Federal Reserve officials cut rates for the third consecutive time at their December meeting. Since then, many policymakers have indicated that further rate cuts this year should be approached with caution. They pointed out that progress in bringing inflation down to the Fed's 2% target has been slow, coupled with a still-strong labor market, providing justification for keeping rates unchanged for the time being.
Evans stated, "If conditions stabilize, inflation does not rise, and employment is stable and full, I believe interest rates should decline to what I consider a neutral level. Therefore, in 12 to 18 months, rates will be much lower than they are now."
Evans believes that inflation has improved in recent months. He noted that the annualized inflation rate appears high mainly due to rising price pressures at the beginning of 2024.
Following the release of stronger-than-expected employment data, major Wall Street banks have lowered their forecasts for further rate cuts by the Federal Reserve. Bank of America previously expected two rate cuts of 25 basis points each this year but now believes the rate-cutting cycle has ended and that there may even be rate hikes. Citigroup still expects five rate cuts of 25 basis points each, but starting in May instead of the previously anticipated January. Goldman Sachs expects two rate cuts this year instead of three