Chicago Fed's Goolsbee says he's cautious about further rate cuts during shutdown

Chicago Federal Reserve President Austan Goolsbee expressed hesitation on further interest rate cuts, citing the government shutdown's blackout on critical inflation data, including the upcoming CPI and PCE reports. Despite his medium-run dovish stance, Goolsbee noted recent inflation trends, with September's annual rate at 3% and pre-shutdown core inflation at a 3.6% annualized pace, making him wary of 'front-loading' cuts without current price insights. He emphasized caution due to this data uncertainty, advocating for a slower approach to monetary policy decisions, a stance relevant given his December FOMC voting position.

Analysis

Chicago Federal Reserve President Austan Goolsbee has expressed significant hesitation regarding further interest rate reductions, primarily due to the government shutdown's impact on key inflation data releases. Despite his stated medium-run dovish outlook, advocating for lower rates eventually, the current lack of critical price reports, including the October CPI and PCE, is a major concern. This data blackout prevents the Fed from accurately assessing recent inflation trends, which have shown general inflation trending higher.

Goolsbee highlighted that September's annual inflation rate stood at 3%, exceeding the Fed's 2% target, while pre-shutdown three-month core inflation was running at an annualized 3.6%. This upward trend, combined with the inability to monitor current price developments, makes him uneasy about "front-loading" rate cuts. He emphasized the risk of misinterpreting recent inflation as transitory without fresh data, advocating for a cautious "slow down" approach in monetary policy.

While the Chicago Fed's labor market dashboard indicates stability, with an October unemployment rate of 4.36% and steady hiring, Goolsbee noted that labor market deterioration is immediately visible, unlike inflation issues. This disparity in data visibility further underscores his caution regarding rate decisions. His upcoming vote in the December Federal Open Market Committee meeting makes his current stance particularly relevant for near-term policy expectations.

Key Decisions for Investors

• Investors should anticipate increased volatility in interest rate-sensitive assets given the heightened uncertainty surrounding future Fed policy due to data blackouts.
• Monitor upcoming statements from other FOMC members for similar cautious tones, as Goolsbee's stance suggests a potential shift away from aggressive rate cut expectations.
• Consider hedging strategies against potential inflation surprises or a prolonged period of higher-for-longer rates if critical economic data remains unavailable.