Austan Goolsbee, Chairman of the Chicago Federal Reserve (Fed), said that in the face of recent banking tensions, the central bank should be prudent in raising interest rates, noting that a pullback in bank lending would help quell the inflation and would leave less work for monetary policy.
“At times like this of financial stress, the proper monetary approach requires prudence and patience to assess the potential impact of financial stress on the real economy,” Goolsbee said in his first comments on the monetary outlook since taking office in January. .
Inflation, which by the Fed’s preferred measure is more than double the 2% target, has not come down enough, even after sharp interest rate hikes over the past year, Goolsbee lamented at an event at the Economic Club of Chicago.
Furthermore, employment growth has been “remarkable”. Based on these data alone, Goolsbee added, a more aggressive tightening of monetary policy could be seen as warranted.
However, the failures of Silicon Valley Bank and Signature Bank triggered financial stress that may have a “material impact” on the real economy that the Fed must take into account, he said.
Given the uncertainty that abounds about where these headwinds in the financial sector are headed, I think we need to be cautious,” Goolsbee said. “We need to collect more data and be cautious about raising rates too aggressively, at least until we see how much work headwinds do in bringing inflation down.”
For his part, Patrick Harker, president of the Philadelphia Fed, believes that the institution may soon finish raising rates.
“Given that it can take up to 18 months for the full impact of monetary policy actions to be felt in the economy, we will continue to carefully review the available data to determine what, if any, additional action we need to take,” Harker said in a statement. speech for the WIFPR.
