Inflation Dilemma: Fed Official Warns of Possible Rate Hikes Amidst Market Expectations for Cuts
Despite widespread market expectations for a rate cut this year, a senior Federal Reserve official, Austan Goolsbee, warns that persistent inflation may result in a different outcome.
Goolsbee, President of the Chicago Fed, stated that if inflation doesn’t improve, the Fed could consider rate hikes.
The Federal Reserve aims to cut interest rates in the next few months, marking the first time in over four years, contingent on bringing US inflation back to its 2% target.
In November, the Consumer Price Index recorded inflation at 3.1%, reaching a four-decade high of 9.1% about 18 months ago due to extensive federal relief spending during the pandemic and supply chain disruptions.
Responding to runaway inflation, the Fed raised interest rates 11 times between March 2022 and July 2023.
Fed Chairman Jerome Powell mentioned in December that these rate hikes had brought the Fed “very far” in its fight against inflation but cautioned that rate cuts might take longer due to persistent inflationary pressures.
The Fed’s next decision on rates is scheduled for January 31.
In his speech, Goolsbee reinforced the central bank’s stance that markets should focus on economic data for any cues on interest rates.
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