Goolsbee says Fed has to wait longer before moving rates due to trade policy uncertainty

Chicago Federal Reserve President Austan Goolsbee recently shared his thoughts on President Donald Trump’s latest tariff threats and how they may impact interest rates. In an interview with CNBC, Goolsbee indicated that the uncertainty surrounding trade policy has complicated the Fed’s decision-making process, leading to a likely delay in any changes to interest rates.

Goolsbee emphasized that while he still believes that rates will trend lower, the Fed will need to wait for more clarity on trade policy before taking any action. He noted that the bar for making a decision has been raised due to the ever-changing nature of the situation. Goolsbee expressed concerns about the potential stagflationary impact of tariffs and stressed the importance of evaluating how they affect inflation and employment.

President Trump’s recent announcement of 50% tariffs on EU products and a 25% tariff on iPhones not made in the U.S. has added to the market volatility. While the impact of these tariffs on the economy may be limited, they underscore the unpredictability of trade policy and its impact on financial markets.

Goolsbee, who is a voting member of the Federal Open Market Committee, remains optimistic about the long-term economic growth trajectory. However, he acknowledged the need for caution in light of recent developments. The committee is set to meet in June to reassess economic projections and interest rate decisions. The markets are anticipating two rate cuts this year, with the next move expected in September.

Goolsbee refrained from committing to a specific course of action, emphasizing the need for flexibility in responding to the evolving economic landscape. He highlighted the importance of maintaining stability in employment and inflation rates to support future rate cuts. The Fed’s current benchmark overnight borrowing rate stands at 4.25% to 4.50%, with the actual rate trading at 4.33%.

Overall, Goolsbee’s insights provide valuable context for understanding the complexities of monetary policy in the face of trade uncertainties. As the Fed continues to monitor economic indicators and external factors, it remains poised to make informed decisions that support sustainable economic growth.