Chicago Federal Reserve President: Optimistic about Inflation Decline in 2025

According to the Zhitong Finance APP, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, stated on Wednesday that he still expects inflation to continue to decline in 2025, while also pointing out some potential uncertainties and risks.

At the 2025 Midwest Economic Forecast Forum hosted by the Wisconsin Bankers Association, Goolsbee said during the Q&A session, "I still see ongoing progress. It is important to take a long-term view on inflation." He added, "Monthly data can have 'noise,' so we should be cautious. But if the trend is consistent over several months, that is a signal. The overall trend indicates that inflation is improving. I remain optimistic about 2025, believing we can achieve sustained economic growth and a soft landing."

Goolsbee noted that uncertainties affecting inflation include potential fiscal policies, geopolitical factors, and broader economic performance. Although the Consumer Price Index (CPI) in December rose 2.9% year-on-year, higher than economists' average forecast and the increase in November, this was mainly driven by volatile energy prices. The core CPI (excluding energy and food prices) rose 3.2% year-on-year, lower than the increase in November and below market expectations.

The Federal Reserve's long-term inflation target is based on a 2% annual growth rate of the Personal Consumption Expenditures Price Index. Goolsbee stated that he is particularly focused on service prices and housing prices. He pointed out that commodity prices have largely returned to pre-pandemic inflation levels, while inflation in service prices, although still high, is gradually slowing.

"The biggest challenge we faced in recent years is that housing inflation is far above pre-COVID levels," Goolsbee said, "but we have made steady progress in housing inflation in recent months, which is encouraging."

However, he also noted that changes in housing prices are relatively slow. Lease contracts are typically updated every 12 months, and the frequency of home sales is even lower. Additionally, the Federal Reserve cannot directly increase housing supply, which is a major issue in many areas of the United States.

"The Federal Reserve has only one tool—interest rate adjustments," Goolsbee metaphorically stated, "Our tool is like a screwdriver; it works well if your dishwasher's handle is loose. But if you need to make breakfast, this tool is not as useful."

Since taking office as president of the Chicago Fed in 2023, Goolsbee is a voting member of the Federal Open Market Committee this year. He declined to comment on the specific impact of policies proposed by the incoming Trump administration (including in areas such as trade, tax, and immigration) on economic growth or inflation. He stated that the Federal Reserve should view fiscal policy as a data point to consider when making interest rate decisions.

Goolsbee quoted a Midwestern proverb: "There is no bad weather, only bad clothing." He explained, "You tell me how the weather is, and I will tell you what coat to wear. In my view, the Federal Reserve's attitude towards fiscal policy should be the same—accept the established conditions and analyze the scenarios that may affect employment or prices."

On Wednesday, the interest rate futures market indicated that the likelihood of the Federal Reserve lowering interest rates at its next meeting on January 28-29 is less than 3%. The market generally expects that there may only be one 25 basis point rate cut in 2025 Despite the volatility in inflation data and market trends, Goolsbee stated that he remains confident about the future economic outlook, while also emphasizing the importance of being cautious amid uncertainty