Fed's Goolsbee sees risk of waiting too long to cut rates, downplays recession fears
By Lindsay Dunsmuir
Aug 5 (Reuters) -U.S. central bank policymakers need to carefully monitor changes in the economy to avoid being too restrictive with interest rates, but there are no signs of a recession despite weaker-than-expected jobs data, Chicago Federal Reserve President Austan Goolsbee said on Monday.
"You only want to be that restrictive if you think there's fear of overheating," Goolsbee said in an interview with CNBC. "These data, to me, do not look like overheating ... as you see jobs numbers come in weaker than expected but not looking yet like recession, I do think you want to be forward-looking at where the economy is headed for (in) making the decisions."
Goolsbee also cautioned against taking too much of a signal from a global stock market sell-off that accelerated on Monday, amid fears the U.S. central bank has waited too long to begin cutting interest rates. The aftermath of the Bank of Japan's decision last week to raise rates, as well as increasing geopolitical tensions in the Middle East, also contributed to the rout.
"The law doesn't say anything about the stock market; it's about the employment and it's about price stability," Goolsbee said, citing the Fed's dual goals set by Congress, as he noted how prone financial markets are to volatility.
Nonetheless, officials need to be aware of the possibility that markets are signaling a change in the economy's direction, he said.
"If the market moves give us an indication over a long arc that we're looking at a deceleration of growth, then we should react to that," Goolsbee said.
After he spoke, data showed activity in the vast U.S. services sector rebounded from a four-year low last month, with a measure of services employment rising for the first time since January, although the positive news barely dampened market turmoil.
U.S. stocks remained sharply lower, with their recent slide accelerating after Japan's benchmark Nikkei index suffered its biggest drop since 1987. U.S. indexes, though, were off their lows on Monday after the services sector data.
U.S. Treasury yields, meanwhile, plunged as bond prices shot higher in a safe-haven bid. Earlier in the session, the yield on two-year notes had briefly fallen below those for 10-year notes, although that relationship has since returned to the "inverted" state that has prevailed for more than two years.
The dollar weakened to near its lowest levels of the year against a basket of major trading partner currencies.
The U.S. services data "aligns with our view of an economy in transition rather than one on the brink of collapse," said Matthew Martin, a U.S. economist at Oxford Economics. "Expectations for aggressive rate cuts in September are overdone."
INTER-MEETING CUT
The Fed kept its benchmark interest rate unchanged in the current 5.25%-5.50% range last week and signaled it was on course to begin cutting rates in September, but that decision was followed by worrying signs the labor market might already have turned.
The number of Americans filing new applications for unemployment benefits increased to an 11-month high while job gains markedly slowed in July and the unemployment rate rose to 4.3%.
The data cast doubts on Fed Chair Jerome Powell's assertion directly after the latest policy meeting that the labor market appeared to be normalizing gradually, which would allow the central bank to take a bit more time before cutting rates to ensure inflation was fully quelled.
Instead, economists and traders honed in on Powell's other comments that the Fed would respond if there was an unexpected deterioration in the labor market, a sentiment echoed repeatedly by Goolsbee on Monday.
Asked about the possibility of an inter-meeting rate cut, Goolsbee said "everything is always on the table" from rate increases to cuts as the Fed maintains its focus on employment, inflation and financial stability.
"If the conditions collectively start coming in on the through line that there's deterioration on any of those parts, we're going to fix it," Goolsbee said.
Investors in contracts tied to the Fed's policy rate are now pricing in an inter-meeting cut before the next policy meeting on Sept. 17-18 and maintained bets the policy rate will end 2024 in the 4.00%-4.25% range.
"The Fed's response will be determined by two factors: the extent to which downside risks to the real economy materialize, and whether the sharp sell-off in financial markets causes something to break," said Neil Shearing, group chief economist at Capital Economics.
Powell, who has come under a renewed political lens ahead of the U.S. presidential election in November, was given short thrift by Democratic U.S. Senator Elizabeth Warren.
"He's been warned over and over again that waiting too long risks driving the economy into a ditch," she said in a post on X following the jobs report on Friday. "Powell needs to cancel his summer vacation and cut rates now - not wait 6 weeks."
Reporting by Lindsay Dunsmuir and Dan Burns; Editing by Toby Chopra, Andrea Ricci, Jonathan Oatis and Paul Simao
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.
