Federal Reserve dovish voter: Still believes that rate cuts are possible, but the risks of this outlook are increasing

On Friday, March 21, Federal Reserve dove voter and President of the Federal Reserve Bank of Chicago Goolsbee stated that he still believes a rate cut is possible, although the risks to this outlook are increasing. If progress can continue to be made on inflation issues in the long term, he believes interest rates will decline in the next 12-18 months. The Federal Reserve needs to remain calm and focus on the long term.

In an interview with CNBC, Goolsbee mentioned that he has been hearing increasing concerns from businesses in his region about the impact of tariffs, including worries that tariffs could drive up prices and suppress economic growth. He stated:

When there is a lot of uncertainty, I do think we need to wait for some policy issues to be clarified. I have been communicating with entrepreneurs and community leaders in the region, and there has been a noticeable shift in anxiety in the conversations over the past six weeks; everyone is pausing, waiting on capital projects, capital expenditures, etc., until they figure out the issues surrounding tariffs and other fiscal policies. We have to get through this rough patch.

Goolsbee also stated that even though the Federal Reserve is currently taking a wait-and-see approach, waiting for developments on President Trump's tariff plans, deregulation, and tax cuts, he still expects a rate cut in the future:

If we can continue to make progress on inflation issues in the long term, I believe interest rates will be lower than today’s levels in 12 to 18 months.

On Friday morning, the third-ranking official of the Federal Reserve, President of the Federal Reserve Bank of New York Williams, also mentioned the high uncertainty in decision-making and economic trends, especially regarding inflation. Williams stated:

Recent data—whether hard data or soft data—has been sending mixed signals. Indicators measuring policy uncertainty have risen sharply in recent months.

A question that has been raised in recent days is whether the U.S. economy is heading towards stagflation, characterized by slow economic growth and rising inflation.

Goolsbee stated, “Tariffs will push up prices and reduce output. So this is a stagflationary impulse, but that does not mean we are currently in a stagflation state. The unemployment rate is nearly 4%, and the inflation rate is around 2%. So the hard data we are relying on is not indicative of the stagflation situation of the 1970s. What is truly uncomfortable is the environment when the direction of the data changes unfavorably.”

The Federal Reserve decided to maintain the short-term federal funds rate in the range of 4.25%-4.5% at its March meeting this week. The FOMC noted that uncertainty regarding the U.S. economic outlook has increased, and Fed Chairman Powell used the term “uncertainty” as many as 10 times in the post-meeting press conference.

FOMC members maintained the forecast of two rate cuts by 2025 in March. However, according to CME data, the market generally expects the Federal Reserve to be more aggressive in cutting rates, anticipating a cut equivalent to 75 basis points