According to Austan Goolsbee, president of the Chicago Federal Reserve, the unexpectedly strong job growth in September and higher-than-expected inflation figures are not likely to prevent the Federal Reserve from continuing its trajectory of reducing interest rates.

Goolsbee noted that the Federal Reserve, confident that inflation is heading towards its target of 2%, adjusted its focus last month to support the labor market. As indications of a slowing job market emerged, the Fed cut its short-term benchmark interest rate for the first time in four years by half a percentage point, bringing it to a range of 4.75% to 5%.

However, the recent job report indicated the creation of 254,000 jobs in September, coupled with slightly exceeding inflation expectations at a 2.4% annual increase, has tempered expectations of further rate cuts. Some economists, including former U.S. Treasury Secretary Lawrence Summers, have suggested that the Fed’s recent half-point cut may have been a misstep.

In an interview with YSL News, Goolsbee emphasized that one month’s data should not dictate the Fed’s policies.

“It’s important to look beyond just the numbers of one month and remember that there is a margin of error associated with every statistic,” he stated. “The overall trend indicates that inflation is significantly down, and the job market indicators are stabilizing at levels consistent with what we consider full employment.”

What’s Next for the Fed in Terms of Rates?

“From a broad perspective, the conditions indicate that gradually, over time, interest rates will decrease,” Goolsbee commented.

He indicated that the specific magnitude of each rate cut will be determined during meetings, and the priority lies in the fact that “inflation is significantly down” from its peak of 9.1% in June 2022. He added, “We also need to consider both aspects of the mandate—managing inflation and attending to the job market. This likely points to a series of cuts ahead.”

Ongoing decisions will continue to be data-driven, he stressed.

“Every option (no cut, 25 basis point cut, or 50 basis point cut) remains on the table,” Goolsbee remarked. “The degree of these cuts will depend on our confidence in the trajectory of inflation towards 2% and the stability of the job market near full employment, avoiding deterioration or overheating.”

What Other Factors Does the Fed Monitor?

While the Fed’s interest rate decisions are informed by various economic data, Goolsbee explained that the Fed also pays attention to potential long-term economic disruptions, such as geopolitical conflicts that could raise oil prices or labor strikes that might disrupt supply chains, potentially requiring the Fed to reassess its strategy.

Recently, tens of thousands of port workers along the East and Gulf coasts initiated a strike on October 1 but returned to work on October 4 after tentatively agreeing to a significant wage increase. They have until January 15 to finalize the agreement terms.

“Anyone concerned about the economy should be vigilant toward possible supply shocks and external events,” he advised.

While the Fed can often overlook brief, temporary supply shocks, he noted, “it’s important to address the overall impact they can have on economic conditions.”