Goolsbee says Fed has to ‘do more sniffing’ on inflation before raising rates again

The Fed skipped an increase in interest rates last week after 10 straight hikes since March 2022. Senior officials want more time to assess how much the economy is softening and whether inflation would continue to ease.

Rate hikes take time to slow the economy and the effects are always readily apparent, Goolsbee noted. He called the Fed decision to pause rate hikes a “close call.”

Still, the central bank’s official economic forecast also signaled two more increases this year. Fed Chairman Jerome Powell on Wednesday reiterated rates are likely to go even higher in a congressional hearing.

Asked if the Fed would learn all it needed to know about inflation in the next six weeks, Goolsbee said: “Probably not.”

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The central bank has rapidly lifted a key short-term rate to a top end of 5.25% from near zero less than a year and a half ago. Higher borrowing costs tend to slow consumer spending and business investment, the two biggest pillars of the economy.

Yet senior Fed officials also worry about going too far — “overshooting” in central bank lingo — and triggering a recession.

Goolsbee said he hoped to gain more clarity on inflation and the economy before the Fed’s next big meeting on July 25-26. He noted the labor market was still quite strong and consumer spending was relatively robust.

” I am a data dog. We need to do more sniffing,” said Goolsbee, contending he’s neither hawk nor dove on inflation. Those terms are used used to describe central bankers who are viewed as either more or less aggressive in fighting inflation with higher rates.

Goolsbee is a voting member this year of the Fed’s interest-rate setting panel, known as the Federal Open Market Committee.