“I don’t think you should get rid of anything from the table – it increases, cuts, holds the same, but there are many major question marks where we are now, but it seems we need to wait and see how these things are resolved.”
Monetary policy action lawsuits are now “a little high” as central bankers scrutinise the data to see how the economy is responding to actions taken by the Trump administration to sharply raise import prices widely.
Ghoolsby noted that the tariffs pursued by President Donald Trump, even if they were pulled back, are still very high and will affect the economy in ways that monetary policy is difficult to deal with.
“There is no general playbook on how central banks should respond.” The surge in import taxes spoke to the wider gathering to create a stagflection shock or period of simultaneous high inflation and a period of decline in growth. The uncertainty is high and there are problems, but if that is resolved and inflation could drop amidst solid job market performance, “I think it’s still a year or two, 12-18 months from now, lower than today,” he said.
Goolsbee also said that while financial markets are under pressure, the pain is not unique to US assets alone, but can also be seen in other markets. Amid the extreme volatility of Treasury yields, Ghoolsby told reporters that the successful outcome of the government’s 10-year memo gave him “comfort.” He also told reporters that the US government bond market has held its long-standing role as a safe haven, saying, “When there’s a flight to safety, I feel that the long-term Treasury is the safest asset in the world.”
Risk outlook
Ghoolsby spoke the day after President Donald Trump overturned large tariffs in dozens of countries while increasing pressure on China. The tariff changes unleashed global stock rallies on Wednesday, but US stocks reversed the course on Thursday.
Some major banks predict that the economy will soon fall into a recession. Financial markets are also selling more aggressive interest rate cut prices, and we expect the Fed to move to support the job market.
Goolsbee told the collection that the current economic data looks pretty good, but the delays when data is reported could mean that it doesn’t reflect the current situation. Goolsbee said it’s important to see all the data the Fed can do now.
He also emphasized the importance of suppressing inflation expectations as it helps manage current price pressures. He said that short-term expectations are rising, but critical views on long-term price pressures have been fixed so far.
If expectations deteriorate, the Fed’s policy decisions will require an advantage. If expectations of long-term price pressures begin to rise, “Central banks need to deal with it regardless of what other terms are.”
Goolsbee told reporters it prefers to watch market-based measures of inflation expectations against survey forecasts.
