Ostap Goolsbee, president of the Federal Reserve Bank of Chicago, said that he could foresee the possibility that the US central bank might need to raise interest rates or resume cutting them, depending on the course of the Middle East war.
“If inflation behaves well, we might return to an environment of multiple rate cuts this year,” Goolsbee said in an interview with CNBC on Monday. “If inflation gets out of control, I think we might need to raise interest rates.”
Fed officials left interest rates unchanged last week and continued to signal that they would cut rates once this year, despite the uncertainty brought by the Iran war. Since the last meeting, as concerns over inflation have intensified in financial markets, investors have factored in expectations of rising rates. However, US Treasury prices rose on Monday after President Trump said he would delay strikes on Iran’s energy infrastructure.
Federal Reserve Chair Jerome Powell told reporters after last week’s decision that a rate hike was not the “base case” for the majority of officials. He also added that it was too early to assess the scale and duration of the Middle East conflict and its impact on inflation and economic growth.
Goolsbee, who did not vote on interest rate decisions this year, said that most economic indicators show that the Fed is “closer to full employment in terms of inflation than to hitting the target. Therefore, I think that currently in the central bank’s calculations, inflation must slightly precede employment.”
The president of the Federal Reserve Bank of Chicago emphasized the impact of rising gasoline prices on consumer inflation expectations. He stated that current inflation expectations are largely in line with the central bank’s 2% target. He pointed out that oil shocks could dampen economic growth and boost inflation, which is “the most challenging issue for the central bank” because “there is no ready-made solution.”
Federal Reserve Governor Stephen Miler acknowledged in a speech on Bloomberg Television on Monday that persistently high oil prices could eventually spill over to other goods and services, but he rejected the notion that policymakers need to consider raising interest rates.
Milan said on Bloomberg’s “Market Watch” program: “We should wait until all the information is collected before truly changing our view. I think it’s too early to make a clear judgment on the situation in the next 12 months.”
Milan said that he still expects four interest rate cuts this year.
