Fed’s Austan Goolsbee welcomes jobs report, flags risk of low inflation

Goolsbee said both inflation, which has cooled toward the Fed’s 2% target, and employment are in a good place right now and that Fed officials should do what they can to 'freeze' them in place.

Federal Reserve Bank of Chicago President Austan Goolsbee lauded the strong September jobs report but warned of putting too much stock in one month’s data, adding that there are risks that inflation might undershoot the central bank’s 2% target.

“This jobs number today, and the whole report, is a superb report,” Goolsbee said Friday in an interview with Bloomberg Television’s Michael McKee. “I still think, as a central bank, you don’t want to react too much to one month’s report.”

Government data released earlier Friday showed robust hiring in September and upward revisions to the past two months, which had seen softer payrolls growth. The unemployment rate unexpectedly fell to 4.1%.

The rosier jobs picture is helping to alleviate concern about the labor market and has investors betting on a smaller, quarter-point cut at the Fed’s next meeting in November. Policymakers will get one more employment report before then, along with inflation reports for September, which could all influence their decision making.

Goolsbee said both inflation, which has cooled toward the Fed’s 2% target, and employment are in a good place right now and that Fed officials should do what they can to “freeze” them in place.

He gave no indication he thought the Fed should back away from additional rate cuts.

“If you look at expectations, there are some signs that inflation might undershoot the 2% target, and we want to be mindful of that too,” Goolsbee said.

Neutral Rate
Fed officials cut rates for the first time since the onset of the pandemic at their meeting last month, reducing the federal funds rate by a half percentage point. The larger-than-usual cut was a bid to bolster the labor market amid a slowdown in hiring and other signs of cooling.

The Chicago Fed chief said the median estimate of the Fed’s 19 policymakers, which has interest rates falling to 3.4% by the end of next year and to 2.9% by the end of 2026, seems “quite appropriate.” He said the neutral rate of interest, where it neither stimulates nor weighs on the economy, has likely risen but the Fed has time to figure out where that level is.

“It’s hard to say exactly what it is,” Goolsbee said of the neutral rate. “I think it’s definitely higher, in my mind, than the zero where we were for a lot of years before Covid.”

Fed officials have been increasing their estimate of the longer-range neutral rate. The median estimate, without adjusting for inflation, is now at 2.9%, up from 2.5% forecast right before the pandemic. The rate can only be estimated, not measured.