A top Federal Reserve official warned Wednesday that the Fed needs to cut its key interest rate before the job market weakened further, lest it risk moving too late and potentially imperil the economy.
In an interview with The Associated Press, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, says that because the Fed’s rate decisions typically affect the economy only after an extended time lag, it must avoid waiting too long before reducing rates.
With inflation steadily easing, the Fed is widely expected to start cutting its benchmark rate next month from a 23-year high. Goolsbee declines to say how large a rate cut he would favor.
Most economists envision a modest quarter-point cut next month, with similar rate cuts to follow in November and December. The Fed’s key rate affects many consumer and business loan rates.
“There is a danger when central banks fall behind events on the ground,” Goolsbee says. “It’s important that we not assume that if the labor market were to deteriorate past normal, that we could react and fix that, once it’s already broken.”
Goolsbee spoke with the AP just hours after the government reported that consumer prices eased again last month, with yearly inflation falling to 2.9%—the lowest level in more than three years. That is still modestly above the Fed’s 2% inflation target but much lower than the 9.1% peak it reached two years ago.
