Source: Cailian Press Author: Huang Junzhi

Federal Reserve dovish representative, President of the Federal Reserve Bank of Chicago, Austan Goolsbee, praised the latest CPI report released on Thursday, stating that US inflation seemed to have returned to the path to 2%, so he had increasing confidence in the timing of an interest rate cut.

"My view is that this is the road to 2%," he said in an interview.

Goolsbee said that the government report released earlier on Thursday showed that consumer prices index (CPI) for June, slowed down more than expected, which is a "great" news. Together with May's data, this series of data shows that the inflationary data that was stronger than expected earlier this year was only a "bump on the road" rather than a directional reversal.

Specifically, the unadjusted CPI rate for June in the United States was recorded at 3.0%, significantly lower than the market's expected 3.1%, falling to the lowest level since June last year. The adjusted CPI rate for June was recorded at -0.1%, the first negative value since May 2020.

The core CPI excluding food and energy costs rose 3.3% year-on-year, lower than the market's expected 3.4%, falling to the lowest level since April 2021. The core CPI for June rose by 0.1% month-on-month, the lowest level since August 2021, with the market expecting 0.2%.

In addition, Thursday's report also showed a long-awaited easing of housing and rental inflation, which he said was "very encouraging".

However, Goolsbee refused to disclose whether he would support an interest rate cut at the Federal Reserve's policy meeting on July 30-31. But he did say that the Federal Reserve's policy rate range of 5.25% to 5.5% (which has remained unchanged since July last year) actually means that the central bank is increasingly hitting the brakes on the economy.

"If you think the economy is overheating, you will take such strict measures. But in my opinion, this is not what an overheated economy looks like."

Goolsbee also said that although the labor market is still strong, it is cooling down and does not feel like the beginning of a recession. However, he does see some warning signs that the economy is slowing down, including last month's unemployment rate rising to 4.1% and default rates rising.

But he emphasized that it is difficult to know exactly what these warning signs may indicate due to the pandemic's disruption of the economy.

Goolsbee said it is clear that the financial environment is "very restrictive" and that the Fed is "undeniably" tightening policy by maintaining stable rates in the face of falling inflation.

He further pointed out that once the Fed makes its first interest rate cut, whether it will further cut rates and the speed of the cuts will depend on the data.

"I don't like making promises or tying my hands in advance," he added.

Editor/Lambor