Fed’s Rate-Cutting Path Takes a Turn
A Shift in Projections
Chicago Federal Reserve President Austan Goolsbee has revised his outlook on interest rates, predicting a more gradual decline in 2025 compared to his previous forecast. This adjustment comes as the central bank navigates uncertain economic terrain.
Uncertainty Clouds Rate Estimates
Goolsbee attributed his revised projection to the challenges of estimating the neutral rate and inflation rate, citing the uncertainty surrounding policy decisions. This ambiguity has led him to adopt a more cautious approach to rate cuts.
Inflation Remains on Track
Despite the revised rate-cutting path, Goolsbee remains confident that inflation will reach the Fed’s 2% target. With the policy rate currently above its eventual stopping point of around 3%, he emphasized the need for a “fair bit” of reduction over the next 12 to 18 months to combat dropping inflation.
A Departure from Previous Views
Goolsbee’s revised projection diverges from his previous stance, which aligned with that of his fellow policymakers. Initially, he suggested a 100-basis-point rate cut for 2025, but now expects a more modest decrease.
Fed’s Latest Projections
The Federal Reserve’s latest projections, released after the recent quarter-point rate cut, indicate that most central bankers anticipate a 50-basis-point rate cut next year. This revised outlook reflects a more tempered approach to monetary policy.
The Road Ahead
As the Fed continues to navigate the complexities of the economy, Goolsbee’s revised projection serves as a reminder of the ongoing challenges in predicting interest rates. One thing is clear, however: the central bank will need to make adjustments to its policy rate to ensure inflation reaches its target.
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