Due to some of the unique circumstances surrounding this period, there is a chance for the ‘golden path’ … where we get inflation down without a recession,” Goolsbee remarked on CNBC’s “Squawk Box.” “If that were to happen … it would simply be an extension of what we’ve already observed this year, which is an extremely modest rise in unemployment while inflation has fallen significantly. … That’s our objective.”
The Fed held interest rates steady last week, marking the second consecutive meeting in which the Federal Open Market Committee opted to maintain rates, following a series of 11 rate hikes.
Core inflation, as measured by the personal consumption expenditures price index, currently stands at 3.7% on an annual basis, still significantly above the Fed’s 2% annual target. Goolsbee emphasized that the decline in price pressures thus far has already been a remarkable achievement.
“1982 saw the fastest annual decline in inflation,” Goolsbee stated. “Let’s see what happens over the next few months. We might witness the fastest drop in inflation in the past century. As a result, we’re making progress on inflation.”
Despite the tightening measures implemented over the past year and a half, the economy has shown resilience. Gross domestic product expanded at an annualized rate of 4.9% in the third quarter, exceeding even elevated expectations.
Goolsbee acknowledged that achieving such a “golden path” in the face of a historically significant surge in inflation will be no easy feat.
“Uncharacteristically for a soft landing of this magnitude, there has never been a drop in inflation, where we get inflation down as much as we’re getting it down without a severe recession. That has essentially never happened,” he explained. “Let’s aim to manage that.”
The Fed president echoed Chairman Jerome Powell’s remarks from last week, stating that the central bank will remain data-dependent moving forward.
Powell had previously indicated that the central bank has not yet made any decisions for its December meeting, stating that “The committee will always do what it believes is appropriate at the time.”
Key Takeaways:
- The Fed still sees the possibility of achieving a soft landing, where inflation is brought under control without causing a recession.
- The decline in inflation seen so far has been significant, but it remains above the Fed’s target.
- The economy has held up well despite the tightening measures implemented by the Fed.
- Achieving a soft landing in the face of such high inflation will be challenging.
- The Fed will remain data-dependent in its decision-making.