Fed's Goolsbee: want more assurance on inflation to cut in Sept or autumn

Chicago Federal Reserve President Austan Goolsbee indicated he remains open to a September interest rate cut, provided incoming data is reassuring, yet expressed caution over recent services inflation and the 'stagflationary' impulse from tariffs. While July's retail sales and factory output offered some economic stability, rising import prices and earlier services-driven increases in producer and consumer prices signal persistent inflationary pressures, complicating the Fed's path to rate normalization despite overall economic strength.

Analysis

Chicago Federal Reserve President Austan Goolsbee's recent statements introduce a significant degree of caution regarding a potential September interest rate cut, directly challenging market expectations for imminent easing. While he left the door open for a cut, his support is now explicitly conditional on receiving more reassuring data, citing unease over a recent jump in services inflation seen in both producer and consumer price reports. This concern is compounded by a 0.4% rise in July import prices and what he termed a "stagflationary" impulse from tariffs. The economic backdrop presents a conflicting narrative for the Fed. On one hand, a 0.5% increase in July retail sales, following an upwardly revised 0.9% in June, mitigates fears of a sharp economic plunge that might have been inferred from a weak three-month job gain average of just 35,000. On the other hand, forward-looking indicators are softening, with heavy truck output—a proxy for future equipment demand—falling to its lowest level since last October. This juxtaposition of resilient consumer spending against weakening production and persistent inflation underscores the Fed's data-dependent stance and tempers the outlook for a swift or aggressive policy pivot.

Key Decisions for Investors

• Investors should moderate expectations for a guaranteed September rate cut, as the decision is now highly contingent on the next round of inflation and employment data.
• Monitor upcoming CPI and PPI reports with a specific focus on the services components, as any further acceleration in this area could significantly delay the start of an easing cycle.
• Given the conflicting signals between resilient consumer spending and weakening forward-looking indicators like factory and truck output, it may be prudent to position for increased market volatility rather than making large directional bets on the next policy move.