Although the market generally expects a small probability of another rate hike at the September meeting of the Federal Reserve, Charles Evans, a dovish official and the President of the Chicago Fed, has not publicly expressed explicit support for a pause in rate hikes in September. In his latest speech, he stated that the decline in inflation is excellent news, but he remains open-minded about the September meeting.
Chicago Fed Chair Goolsbee said in a media interview on Monday that the decline in US inflation is great news, but he remains open-minded about the September meeting and has not yet decided whether to support a pause in rate hikes at the next Fed policy meeting.
Goolsbee pointed out that the Fed must be flexible and responsive when it comes to whether the interest rate policy is restrictive. Before the September meeting, the Fed will see more important data. It seems that the Fed is doing well in controlling inflation, and the monthly inflation data is "quite good".
The Fed released a series of inflation data for June in July. The latest one is the core PCE price index, which is favored by the Fed and excludes food and energy. The year-on-year growth rate of the US core PCE price index in June decreased from 4.6% in May to 4.1%, slightly lower than the expected 4.2%, and the smallest increase since September 2021.
When it comes to bringing inflation down to the Fed's target without triggering an economic recession, Goolsbee said that the Fed has done a good job of striking a balance in its policies. "This is the golden road, and so far, we have been sticking to it. It will be a victory, and it is definitely possible at the moment."
Recent resilient economic data in the United States seems to confirm the Fed's "soft landing" judgment. Data released last week showed that US GDP in the second quarter increased by 2.4%, far exceeding expectations, and personal consumption was strong. Many economists believe that the only way to fight inflation is to push the economy into a recession. Goolsbee believes that the Fed has proven this point wrong so far. He recently said, "The idea of a stable Phillips curve was already broken before the appearance of the COVID-19 pandemic. Now that we are emerging from the pandemic, it is broken again."
Goolsbee also stated that he has not seen credit conditions tighter than expected.
At the FOMC meeting last week, Fed policymakers unanimously supported a 25 basis point rate hike decision, raising the target range for the federal funds rate to 5.25%-5.50%, the highest level in twenty-two years, as expected. This is the second rate hike after pausing in June. The Fed left the door open for further actions, stating that it will continue to assess new information and its impact on monetary policy.
During the press conference after the July meeting, Fed Chair Powell did not rule out the possibility of a rate hike in September. He stated that if the data supports it, the Fed may raise rates again in September and does not want to provide forward guidance. He also reiterated that there will be no rate cuts this year.
Goolsbee took office in January this year and, after four US banks collapsed, he is more concerned about the tightening financial conditions than many of his colleagues. Therefore, his stance is more dovish. He has repeatedly stated in recent months that it takes some time for rate hikes to have an impact on the economy.
The current market expectation is that although concerns about the resurgence of inflation may prompt the Fed to raise rates again at the September meeting, bettors believe that the likelihood of this scenario is low.