Fed Chair Goolsbee sees the “golden street” to bringing down inflation with no recession

Chicago Federal Reserve Chairman Austan Goolsbee said Friday he’s confident inflation can be contained without a recession, even if more rate hikes are likely.

Speaking to CNBC after the release of June’s nonfarm payrolls report, he said continued job growth is part of the Fed’s “golden road” to restoring price stability without hurting the economy.

“The Fed’s primary objective right now is to bring down inflation. We’re going to get there, and to do that without creating a recession would be a triumph,” Goolsbee told CNBC’s Steve Liesman in a Squawk on the Street interview. “This is the golden road and I feel like we are on that golden road. So I hope we delay the recession forever. Let’s never have a recession again.”

Economists, including those who work at the Fed, expect the contraction in credit to result in at least a mild recession later this year or in early 2024.

However, one of the most important cogs in the economy, the labor market, is showing only slight signs of weakening. Job count rose just 209,000 in June, below Wall Street estimates, but an unemployment rate of 3.6% suggests a resilient economy.

“Overall, the labor market is excellent and returning to a balanced, sustainable level,” said Goolsbee.

However, inflation remained stubbornly high, well above the Fed’s 2% target.

After the June meeting, a large majority of Federal Reserve Open Market Committee officials indicated in their updated quarterly forecasts that they expect at least two more quarter-point rate hikes by the end of 2023. Although Goolsbee said he was confident that inflation would ease, he also said it was likely to tighten further.

“Almost all FOMC members agree in the forecast statement that we will do one or two more rate hikes this year. I haven’t seen anything to suggest that’s wrong,” he said. “That’s the golden path, where we bring inflation down to around our target without a recession.”

Fed policy is expected to have a lag, meaning the 10 rate hikes since March 2022 are unlikely to have had an impact on the economy yet. Goolsbee said he was unsure about raising rates at the July 25-26 FOMC meeting.

“There are still some modest increases to come, but we have already taken many measures and are now waiting to see the impact,” he said.