Fed’s Goolsbee sees ‘golden path’ to lower inflation without a recession

Despite an increasing likelihood of interest rate increases, Chicago Federal Reserve President Austan Goolsbee said Friday that inflation could be tamed without a recession. Following the release of the June nonfarm payrolls report, he said ongoing job growth is part of the Fed’s “golden path” toward restoring price stability without taking the economy. “What the Fed’s overriding goal right now is to get inflation down. We’re going to succeed at it and to do that without a recession would be a triumph,” Goolsbee said. “That’s the golden path, and I feel like we’re on that golden path. So I hope we keep putting off the recession to forever. Let’s never have a recession again.” Several economists, including those at the Fed, expect a modest recession by the end of this year or early in 2024 due to credit contraction. Jobs, however, are showing only slight signs of slowing down as one of the economy’s key cogs. Payrolls grew by just 209,000 in June, below Wall Street estimates, but an unemployment rate of 3.6% suggests a resilient economy. “Overall, the jobs market is outstanding and is returning to a balanced, sustainable level,” Goolsbee said. Inflation has remained stubbornly high and well above the Fed’s 2% goal.

During the June meeting, most Federal Open Market Committee officials indicated they anticipate at least two more quarter percentage point rate hikes before the end of 2023. Though Goolsbee said he is confident that inflation is ebbing, he also sees more tightening as likely. “The consensus of almost all the FOMC in the statement of projections is that over this year, we will have one or two more hikes. I haven’t seen anything that says that’s wrong,” he said. “That is on the golden path where we get inflation down to something like our target and we do it without a recession.” Fed policy is seen as operating with a lag, meaning that the 10 rate hikes since March 2022 likely haven’t worked their way through the economy yet. Goolsbee said he is undecided about whether to hike at the July 25-26 FOMC meeting. “There are some modest increases to come, but we’ve done a lot of the lifting and now we’re waiting for the impact,” he said.