Chicago Fed President Goolsby said on Friday that he has slightly lowered his forecast for next year's rate cuts, but still expects the Fed to moderately cut rates next year.
The Federal Reserve announced a 25 basis point interest rate cut on Wednesday, lowering the target range for the federal funds rate to 4.25% -4.5%. Although the interest rate cut is in line with market expectations, the Federal Reserve has also significantly reduced its expectations for the number of interest rate cuts next year. The interest rate dot plot shows that decision-makers expect to cut interest rates twice in 2025, while the September forecast is four times.
Gulsby said in a media interview, "The uncertainty of policies makes it particularly difficult to estimate neutral interest rates and inflation rates. This is also part of the reason why my expectations for the 2025 interest rate path have become slightly more moderate
Overall, inflation has significantly decreased. I believe we are moving towards our 2% target, "he said.
As a dovish official, Gulsby will replace Cleveland Fed Chairman Hamack as a new voting member of the Federal Open Market Committee (FOMC) next year.
The Federal Reserve holds eight interest rate meetings annually, during which all 12 regional Fed chairs discuss and debate monetary policy. However, only seven Fed governors and the New York Fed chair have fixed voting rights, while only four out of the remaining 11 regional Fed chairs have voting rights, which rotate annually.
Gulsby previously stated that he believes interest rates need to be lowered by 100 basis points next year. However, as Trump is about to take office again, his tariff policies may cause inflation in the United States to rise again.
Gulsby pointed out that the current policy interest rate is much higher than its ultimate target level (about 3%), and as inflation decreases, the Federal Reserve needs to significantly lower interest rates in the next 12 to 18 months.
Gulsby gave a positive evaluation of the latest inflation data released that day. According to data released by the Bureau of Economic Analysis of the US Department of Commerce, PCE in November increased by 2.4% year-on-year and 0.1% month on month, marking the smallest monthly increase since May; In November, the core PCE increased by 2.8% year-on-year and 0.1% month on month; All four indicators are lower than market expectations.
The core PCE price index is a preferred inflation indicator for Federal Reserve officials, and the long-term inflation target of 2% set by policymakers is based on core PCE data.