Goolsbee says lowering inflation is the U.S. Fed’s most important job

Chicago Federal Reserve President Austan ⁠Goolsbee said Thursday that the U.S. central bank should focus on curbing inflation amid ample evidence of labor market stability, in comments that kept alive the prospect of interest rate cuts later this year. “There’s still strength” in the labor market and “I think the biggest thing we’re facing is we’ve got to get inflation back to 2%,” Goolsbee said in an interview on CNBC. “Interest rates can still fall significantly,” with cuts even taking place this year, but “we need compelling evidence that we are on track back to 2% inflation.”

Goolsbee spoke to the television station as the latest round of data came in on unemployment insurance claims in the US. This showed that, despite concerns about recruitment, employees do not appear to be losing their jobs en masse. Meanwhile, recent payroll data showed the unemployment rate fell in December as many Fed officials have described the labor market as a landscape of few workers and few layoffs.

The Fed cut rates by three-quarters of a percentage point last year, a move based on central bankers’ desire to help stimulate the labor market while providing enough restraint to the economy to reduce price pressures well above the 2% target.

Goolsbee, who disagreed with December’s rate cut, said Thursday he is no longer concerned about the labor market becoming too weak, meaning the Fed should focus on getting inflation back on track. Referring to the latest claims data, Goolsbee said, “I’m not surprised by these low numbers. I’ve been saying for months, as you know, that our labor market indicators from the Chicago Fed strongly suggest that there is stability in the labor market.”

GOOLSBEE WARNS OF BREACH OF FED INDEPENDENCE The Chicago Fed president also addressed escalating tensions between the US central bank and the White House, following Fed Chairman Jerome Powell’s statement that a Justice Department investigation into the central bank is happening simply because the Fed followed the law and set monetary policy independently, rather than following orders from President Donald Trump. The president has repeatedly pressured the Fed to make major interest rate cuts. Goolsbee offered support for Powell’s statement and warned against interference in the central bank’s independence. “Trying to blow up the Fed’s independence is kind of a festering stench on the road back to 2%,” he said.

“I know there have been countries that have had criminal investigations into their central banks, but those countries are Zimbabwe, Russia and Turkey and a number of places that you wouldn’t characterize as advanced economies,” Goolsbee said.

“Anything that violates or attacks the independence of the central bank is a mess. If you try to take away the independence of the central bank, you will let inflation come roaring back.”