Chicago Federal Reserve Chairman Austan Goolsbee commented today on the situation in the US economy. The U.S. dollar today is one of the weaker currencies, with the dollar index (USDIDX) losing nearly 0.5%. Goolsbee was optimistic about the prospects for a soft landing of the economy, stressing that the current situation is significantly different from historical scenarios of Fed policy tightening. Goolsbee comments may be perceived as dovish and Chicago Fed chair said that he didn't decide yet about rate hike in November (which according to markets it's the most probable scenario).
- Some analyses show that inflation will soon reach target without further policy tightening and only a slight slowdown in growth. The Fed will bring inflation back to target, but it has a chance to do something rare - achieving it without a recession.
- Sticking to the scenario that job losses are needed to slow inflation risks a short-term policy mistake
- Recent data that inflation is slowing without job losses is significantly at odds with previous patterns of the U.S. economy.
- The Fed must be 'extremely cautious' in tying policy to historical relationships that may not hold in the current economy
- I am pleasantly surprised that monetary tightening has not caused broader financial stability problems.
- Once the Fed returns to the 2% target or is on a clear path to it, then a discussion of the level of the target will be entirely warranted. From the beginning, I have not been a big fan of a clear inflation target.
- Inflation targets run the risk of creating a false sense of accuracy and precision with a large number of variables
- So far, inflation has been driven mainly by supply-side problems. Evidence suggests that the 2021 inflation outbreak is largely supply-driven although there was a demand component.
- I have not made a decision on what to do at the next meeting. If the Fed sees a lack of progress on the price side, it will have to raise rates.
- Long-term inflation expectations are adequately anchored and could help lower inflation with less economic pain than in the past.
- Risks to the outlook include oil prices, a slowdown in China,
- The possibility of a prolonged UAV strike in the US or a 'disruptive' government shutdown.
- The importance of expectations and Fed credibility makes proposals to raise the inflation target from 2% quite risky.
- Higher productivity may mean that long-term potential is not as low as some have estimated, allowing for more growth without rising inflation.
- Real estate and renting will be key to further inflation progress over the next few quarters, with the risk that rising home prices could also boost rental prices
The dollar index (USDIDX) contracts are approaching the SMA200 (red line), and the RSI on the M30 interval is one step closer to oversold levels.
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