The Zhitong Finance App learned that Chicago Federal Reserve Chairman Austin Goolsbee (Austan Goolsbee) said on November 16 that the US economy is in a transition period and is currently a “critical moment” for monetary policy. As 2023 draws to a close, the distortions caused by the COVID-19 pandemic and subsequent economic rebound are gradually fading away.

Goulsby spoke while attending the Central Indiana Corporate Partnership event in Indianapolis. He pointed out that the current phase of the US economy may require further interest rate cuts, but the pace may slow down compared to this fall.

“I always say that in times of economic transition, the most difficult task for central banks is to seize the moment,” Goulsby said. He believes that the US labor market is approaching a “stable state of full employment,” and the inflation rate is gradually approaching the Federal Reserve's 2% annual target. This development is an ideal state of affairs for the economy, and policymakers want to avoid excessive economic slowdown.

Goulsby said that the Federal Reserve may need to adjust interest rates to an appropriate neutral level. He stressed, “We don't need to reach this target right away, but from the perspective of the next year, I think interest rates will be significantly lower than they are now.”

According to the Federal Reserve's latest decision, the federal funds rate target range was lowered by 0.25 percentage points to 4.5% to 4.75% on November 7. Previously, it was cut by 0.5 percentage points in September. This is the first time that the Federal Reserve has adjusted interest rates after keeping interest rates unchanged for more than a year. Goulsby anticipated that this gradual downward pace could slow further as interest rates approach target levels.

Federal Reserve officials generally describe the target interest rate as a neutral interest rate, that is, a theoretical interest rate level that neither stimulates nor inhibits economic activity. However, this level is not clearly visible and needs to be judged by economic performance. Many economists believe that the current neutral interest rate in the US is higher than a few years ago due to factors such as faster productivity growth.

Goulsby explained, “When there is uncertainty or disagreement about the final level of interest rates, it may make more sense to slow down the pace of interest rate cuts as we get closer to the target.”

According to interest rate futures market data from November 16, traders generally believe that the December Federal Reserve meeting may lower the federal funds rate target range by 0.25 percentage points again, while the possibility of suspending interest rate cuts is slightly lower. The market predicts that by the end of 2025, the federal funds rate will be reduced by a cumulative total of 0.75 percentage points.

Goulsby has been the chairman of the Chicago Federal Reserve since January 2023, and he will participate in the Federal Open Market Committee (FOMC) voting decisions in 2024. His opinion suggests that when formulating future interest rate policies, the Federal Reserve will pay more attention to precise adjustments during the economic transition period to achieve the goal of maintaining economic stability and controlling inflation.