Two Federal Reserve officials emphasized Tuesday that bringing inflation fully down to the central bank’s 2% goal is their main focus, amid signs that the economy and labor market are holding up.
“We’ve got to get inflation down — that’s the No. 1 thing,” Chicago Fed President Austan Goolsbee said Tuesday in an interview with CNBC. “I’m absolutely hammering that’s what we should be watching,” adding that the economic and job growth can’t be the key focus now.
Goolsbee, who has been more wary of raising rates too high and causing too much economic pain in the process, said he didn’t want to pre-commit to whether the Fed would need to increase borrowing costs at future meetings.
Minneapolis Fed President Neel Kashkari, speaking on Bloomberg Television, echoed Goolsbee’s commitment to cool prices but said the Fed’s inflation fight isn’t over yet.
“Ultimately, the economy will tell us how much is needed to get there. And I just don’t know,” Kashkari said, adding that he and his colleagues need to bring prices down “in a reasonable period of time.”
Goolsbee and Kashkari, both voters on this year’s policy-setting Federal Open Market Committee, spoke nearly a week after the Fed left interest rates unchanged for a second straight meeting. Policymakers last week kept rates in a range of 5.25% to 5.5%, a 22-year high, and Chair Jerome Powell hinted that the central bank may be done raising interest rates.
Both Fed officials also noted that as inflation comes down, real interest rates will rise, tightening policy and potentially warranting cuts if the impact is too strong.
“If we didn’t back off a little bit, then real rates would be getting tighter and tighter and tighter and that’s real, that’s math,” Kashkari said.
Read more: Fed’s Kashkari Says Too Soon to Declare Victory on Inflation
While he’s encouraged by the disinflation that’s under way, Kashkari noted that economic activity and the labor market remain robust.
“I’m not seeing a lot of evidence that the economy is weakening,” he said.
Goolsbee said that while the economy has been cooling, the unusual aspects of the post-pandemic situation may be creating an environment where rapid disinflation can occur without spurring a full recession — a scenario he calls the “golden path.”
“To get inflation down as much as we’re getting it down without a big recession, that’s basically never happened,” Goolsbee said. “But because of some of the strangeness of this moment there is the possibility of the golden path, that we got inflation down without a recession.”
He noted that some supply-side improvements, such as the easing of pandemic bottlenecks and an increase in workforce participation, are helping to keep the economy from substantially weakening.
--With assistance from Michael McKee, Lisa Abramowicz and Jonathan Ferro.
