Fed’s Goolsbee: We’re no longer on the golden path as seen in the last two years

Forex Short News
  • We’re now entering into a different chapter
  • There’s a lot of dust in the air
  • If market-based long-run inflation expectations continue as they have recently, I would view that as a major red flag area of concern
  • Must address the situation if investor expectations start to converge to that of households
  • Interest rates should be “a fair bit lower” in the next 12-18 months
  • But it could take longer for the next rate cut to come to fruition due to economic uncertainty
  • “Wait and see” is the correct approach for now but it comes with a cost
  • Full transcript (may be gated)

In other words, if the market starts to go kicking and screaming on inflation, they would take it as being a red flag. The narrative here fits with the Fed not going to be cutting in May next. But June is still up in the air and a lot will come down to Trump’s tariffs and US economic data developments in the weeks ahead. For now, traders are still pricing in ~60 bps of rate cuts by year-end.

This article was written by Justin Low at www.forexlive.com.