(Bloomberg) -- Federal Reserve Bank of Chicago President Austan Goolsbee said he is growing more concerned about the labor market than inflation amid recent progress on price pressures and disappointing jobs data.
Goolsbee said current interest rates are “very restrictive” in an interview with Bloomberg News Wednesday, a stance he said would only be appropriate if the economy were overheating. He declined to comment on how likely or how large a rate cut might be at the Fed’s next meeting in September.
When asked about the balance between inflation and labor-market risks, Goolsbee said, “It feels like, on the margin, I’m getting more concerned about the employment side of the mandate.”
The comments followed data earlier Wednesday that showed a key measure of underlying annual inflation eased for a fourth straight month, and labor-market figures for July that raised concerns the Fed has been too slow to lower its key policy rate from the highest level in more than two decades.
While he noted the recent increase in the unemployment rate could reflect more people entering the labor force, it could also be “an indicator that we’re not settling down at steady-state levels, but moving into something that’s, in the short-run, worse.”
“If that starts to happen, then our emphasis has to be significantly more on the employment side of the mandate,” he said.
Fed Chair Jerome Powell and other policymakers have said they are increasingly focused on preventing a downturn in the jobs market, a shift from recent years when the central bank was primarily focused on taming elevated inflation.
September Meeting
The Fed is widely expected to lower interest rates in September, though investors and economists are split on whether that will be by a quarter-point or half-point reduction. Traders are betting policymakers will cut borrowing costs by a full percentage point between now and year’s end, according to futures markets.
Goolsbee declined to comment on the September meeting specifically, but he did point to the interest-rate setting Federal Open Market Committee’s recent economic projections. He said those estimates indicated multiple rate cuts would be appropriate through 2025 even with “conditions that are less favorable than the ones we’re facing now.”
The committee, according to the median projection in June, expected to lower borrowing costs just once this year, followed by four additional cuts in 2025. The projections also estimated that by the end of 2024, the unemployment rate would average 4%. It climbed to 4.3% in July.
Annual inflation, according to the Fed’s preferred measure, has already fallen below the June projection of 2.6%.
“If you were going into a recession or you believe that you were going into recession, that would affect the rate at which you’d be doing the cuts,” Goolsbee said. “Conditions are what will warrant the size of the cuts,” he added.
(Updates with additional comments from Goolsbee beginning in second paragraph.)
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