Chicago Fed President Austan Goolsbee soothed market fears Wednesday, saying that a hotter-than-expected reading on consumer prices doesn't mean the central bank won't be able to cut interest rates in 2024.
"Let’s not get amped up on one month of CPI that was higher than it was expected to be," Goolsbee said while speaking at the Council on Foreign Relations, referring to the release Tuesday of the latest Consumer Price Index.
What the CPI showed is that the index rose 0.3% over last month and 3.1% over the prior year in January — both higher than economists' forecasts.
On a "core" basis, which strips out the more volatile costs of food and gas, prices in January climbed 0.4% over the prior month and 3.9% over last year. The core figure is still double the Fed's target of 2%.
Investors sent stocks tumbling after the report, concerned that it threatened the Fed's ability to cut rates until at least summer. But Goolsbee, while speaking in New York, made it clear he believes inflation is still moving in the right direction.
"If you see inflation go up a little bit that doesn't mean that we're not on the target to get to 2%," Goolsbee said. "We can still be on the path even if we have some increases and some ups and downs … so let's not get too flipped out."
Another Fed official, Michael Barr, said in a separate speech Wednesday that "January’s report on consumer product index inflation is a reminder that the path back to 2% inflation may be a bumpy one."
He, like Goolsbee, is "confident we are on a path to 2% inflation," but he emphasized that "we need to see continued good data before we can begin the process of reducing the federal funds rate."
Goolsbee pointed out that the Fed's 2% target is not based on CPI. Instead, it's tied to a separate measure known as the the Personal Consumption Expenditures index.
And that clocked in at 2.9% for the month of December, beating estimates, marking the first time the gauge fell below 3% since March 2021.
What's more, Goolsbee added, the Fed is looking to measure inflation in three-, six-, or 12-month increments.
"If you do that, it’s totally clear that inflation is coming down," he said. "We’ve had six to seven months in a row [where] the flow rate of inflation has been approaching the target."
Goolsbee said he is watching the prices of housing closely because he believes they need to come down if the Fed is going to get inflation back down to 2%. He expects that will happen, noting a fall in market rents.
The most recent consensus from Fed officials in a report known as the Summary of Economic Projections (SEP) was that there would be three rate cuts in 2024. These officials expect inflation of 2.4% this year, higher than what inflation showed the past six months.
When asked whether the Fed would cut rates with inflation at 2.4%, Goolsbee replied, "Yes, the median SEP says there will be multiple rate cuts at 2.4%."
Fed officials will update their assessment on the number of rate cuts at their next policy meeting in March.
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