(Reuters) – Chicago Federal Reserve President Austan Goolsbee said inflation data released on Friday was a bit better than expected and gives him comfort that inflation is on path to the 2% target, adding that he still expects the U.S. central bank’s policy rate to be “a fair bit” lower in 12 to 18 months.
Goolsbee told CNBC, however, that “there is a question mark that is coming from policy uncertainty,” including over the impact of tariffs that President Donald Trump says he will impose on trading partners like Mexico and Canada as soon as Saturday. “If it affects prices, it affects us … our signal is getting a little muddied, when things are happening that drive up prices.”
Goolsbee said he agrees with Fed Chair Jerome Powell, who on Wednesday said there should be “no hurry” in making further cuts, given the need to see more progress on inflation. Powell spoke after the central bank announced it had left its benchmark interest rate in the current 4.25%-4.50% range.
While tariffs theoretically impose a one-time increase on prices that doesn’t necessarily require a policy response, Goolsbee said, “the difficulty we’re going to have here, in this near period, is if collectively policy is going to be raising prices, we’re going to have to figure out which part of the inflation is the part that monetary policy should look through and which part is a sign of the economy.”
Goolsbee, whose regional Fed bank keeps a close eye on the Midwest region including Detroit, said auto executives tell him they’re concerned about what tariffs might do to their prices or profit margins.
“And we do have to work these through before we can express confidence on where we are on the underlying economy,” Goolsbee said.
(Reporting by Ann Saphir; Editing by Chizu Nomiyama and Paul Simao)
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