Fed’s Goolsbee: ‘There will be a lot of rate cuts’

The U.S. central bank has shifted its goal posts from fighting inflation to supporting economic growth
By Sam Bourgi
•
03 October 2024
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Chicago Federal Reserve Bank President Austan Goolsbee said interest rates will decline much further over the next 12 months, underscoring the central bank’s shifting priorities.

In an interview with Fox Business, Goolsbee said the Fed’s goal is to “get the rates down to normal,” a process that could take “over a year or more.”

“It’s going to be a lot of cuts,” said Goolsbee.

Goolsbee, who’s a voting member of this year’s Federal Open Market Committee (FOMC), said policymakers have been tracking cautionary developments in the job market.

Although unemployment appears stable at 4.2%, the Fed wants to ensure things don’t unravel quickly.

Goolsbee’s comments are consistent with recent remarks from Atlanta Fed President Raphael Bostic, who said the upcoming September nonfarm payrolls report could determine whether a second large rate cut is warranted.

“If employment growth slows much below 100,000 jobs, it would warrant closer questioning of what is happening,” said Bostic. Presumably, this could compel policymakers to advocate for a bigger cut than the standard 0.25% move.

Fed Governor Christopher Waller, too, sees sizable rate reductions over the next year as inflation continues to edge closer to the central bank’s 2% target.

On Sept. 18, policymakers voted to lower the federal funds rate by 0.5%, marking the first such move since 2007.

While the Fed tried to assure Americans that the rate reduction shouldn’t be interpreted as a recession signal, some experts think a downtrend is all but guaranteed.

Things could unravel quickly

The Fed’s sudden pivot in September means policymakers are worried that the economy could soon buckle under the weight of high interest rates, according to Mark Spitznagel, the chief investment officer and founder of Universa.

Spitznagel told Reuters that “the clock is ticking, and we are in black swan territory,” referring to an unpredictable event that could have severe consequences for markets and the economy.

In addition to the jumbo-sized rate cut, Spitznagel drew attention to the massive U.S. debt as a reason to be alarmed.

“The Fed hiked rates into such a huge, unprecedented debt complex [...] That’s why I say I’m looking for a crash that we haven’t seen since 1929,” he said.

Signs of a recession could be the final domino before the Fed warms up the money printer for another round of quantitative easing (QE), or bond buying.

“I do think they’ll save the day again,” said Spitznagel. “I feel strongly that QE is coming back, and rates are going to go back to something like zero again.”

Although the U.S. economy likely grew again in the third quarter, the New York Fed’s analysis of Treasury spreads gives a 61.8% chance of a recession by August 2025.

Some economists, like Amy Dixon, have warned that investors shouldn’t put much stock in the government’s economic data. Dixon believes the next recession will be “backdated” after November as government statisticians revise their growth data.

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