Chicago Federal Reserve Bank President Austan Goolsbee said Thursday that last year's improvements in the supply of commodities and labor set the way for additional U.S. inflation falls this year, indicating his support for interest-rate cuts later this year.
"Rates are pretty restrictive," Goolsbee stated at a Princeton University event. "The question is, how long to remain this restrictive."
He said the Fed's policy rate, now 5.25%-5.5%, will become more restrictive in "real" terms even if held unchanged if inflation continues to fall.
"Eventually," he said, it might harm the labor market, which has been robust despite the Fed's planned rate hikes in 2022-2023.
Goolsbee believes the U.S. economy can remain on the "golden path" of lowering inflation, a strong job market, and economic growth this year, a historically rare pattern.
Repairs to the pandemic-damaged supply chain and immigration that increased U.S. labor force participation lowered inflation last year, but some economists think those favorable developments have peaked. The Goolsbee disagreed.
He said research implies that even if the labor supply does not improve as much as last year, inflation will likely be lowered by the lagged effect. "I still feel like there is supply benefit coming through the system on both the supply chain, and the impact of labor supply," Goolsbee said, adding he would be "careful" extrapolating from a January government data showing inflation rose.
Despite falling rents, he still finds it a "puzzle" why housing inflation has not improved further and is actively monitoring that data.
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