Fed's Goolsbee Predicts Slower Rate Cuts in 2025

Investing.com -- Chicago Federal Reserve President Austan Goolsbee stated on Friday that he expects the path for interest rate cuts in 2025 to be slower than previously anticipated. Nonetheless, Goolsbee emphasized that it is likely the U.S. central bank's policy interest rate will decrease at a reasonable pace next year.

While explaining his revised outlook, Goolsbee acknowledged that policy uncertainty makes it difficult to accurately predict the neutral interest rate and inflation rate. This uncertainty has led to more cautious expectations for the rate path in 2025. Nevertheless, he highlighted that inflation is on the path to reach the Federal Reserve's 2% target.

Goolsbee pointed out that the current policy interest rate is significantly above the estimated terminal level of around 3%. He expressed that declining inflation will compel the Federal Reserve to substantially lower rates within the next 12 to 18 months.

Previously, Goolsbee had suggested that rates should decrease by 100 basis points next year, a view that aligned with other policymakers. However, projections released this week following the Fed's quarter-point cut to a range of 4.25%-4.50% indicate that most U.S. central bank officials foresee only a 50 basis point reduction for the next year.