Regional Federal Reserve Bank presidents are still undecided on whether there should be more interest rate hikes this year.
The Fed hiked interest rates by 0.25 percent at the end of its policy rate meeting on July 26, raising the baseline from 5.25 to 5.50 percent, for the eleventh rate hike since March 2022, after a brief pause in June.
Regional Fed Presidents Note Improving Economic Conditions
Mr. Goolsbee told Yahoo Finance that he was still unsure what the Fed’s next move will. be at its next meeting in September, after it raised borrowing rates to a 22-year high in July.“I’m open to reading the data. If there’s a major change of conditions, I haven’t made up my mind for what should happen in September,” Mr. Goolsbee said, adding that “nothing is off the table.”
Meanwhile, Mr. Kashkari said he was still unsure whether how many more interest rate hikes will remain.
Some economists still fear that additional rate hikes could tip the economy into another recession, but in a research note last month analysts at Goldman Sachs reduced the probability of a recession this year.
Nearly 75 percent of the 52 business economists surveyed by the National Association for Business Economics in June put the odds of a recession hitting within the next 12 months at 50 percent or less.
This is an improvement from the 50-50 split in the last survey in April.
Fed Board Undecided on Whether to Hike Rates in the Fall
Although he is undecided on another rate hike, Mr. Goolsbee said the central is on the “golden path” and has brought inflation down “without causing a major recession.”“That effort to get inflation down, thus far, is working,” he said, “and if we can do that without generating a major recession, that’s a big achievement for the Fed.”
Mr. Kashkari said that the inflation rate of 3 percent “is really positive news,” but prices tend to “move around a lot” due to fluctuating energy and food prices.
He believes that the U.S. economy is making “good progress,” as inflation goes down, but he refused to say whether rates were low enough to cut back on interest-rate hikes.
“So, we’re making good progress,” continued Mr. Kashkari, “but it’s still double our 2 percent rate. And so we don’t want to declare victory.”
“We’re making good progress, and we’re staying on it. If we need to hike—raise rates further from here—we will do so. But we’re gonna let the data guide us and not prejudge the outcome.”
“September and beyond, you know, we may or may not raise in September, but we also will continue to watch all the data, the inflation data, the wage data, as well as the unemployment data to make those assessments,” he said, regarding whether to hike rates at next central bank meeting.
Mr. Goolsbee also refuted some critics who argued that unemployment must rise for inflation to come down, and pointed out that results from the past six months have proven them wrong.
“This business cycle was so sufficiently strange and sufficiently unusual, that I don’t think that the normal rules of a direct trade-off between unemployment and inflation necessarily have to apply,” he said.
“They certainly have not applied in the last six months,” he added.
Mr. Goolsbee said he was still concerned about a tightening credit market, but he admitted that those concerns were “the dog that has not been barking,” citing the stabilization of the banking sector and rising bank deposits.
“Whenever you get a rate-tightening cycle like the one that we’ve experienced, where we’re up 500 basis points in 15 months, let’s call it, that will mean tighter credit,” he said.
“But so far, we have not seen anything tighter on the credit conditions than what you would expect for such a tight rating cycle, so that’s been heartening to see.”
