Chicago Fed President Austan Goolsbee has outlined a path for interest rate cuts in 2026, but with a significant condition attached.
He expressed optimism for "several" rate cuts this year, but firmly stated they would only happen after there is clear, renewed traction toward the Fed's 2% inflation goal. This message of 'patience' isn't new, but Goolsbee's reasoning provides a clear window into the Fed's current thinking, which is shaped by three key factors.
First, and most importantly, is the recent inflation data. While January's CPI report showed some relief, the Fed's preferred gauge, the PCE price index, revealed that core inflation was still at 3.0% in December 2025, with progress stalling. Goolsbee specifically highlighted stubborn price pressures in services outside of housing, often called 'supercore' inflation. This area, which is closely tied to the labor market and wages, remains too high for comfort, running at an annualized pace of nearly 5% according to some estimates. Until these service-related price increases cool down, the Fed sees a risk of cutting rates too soon and allowing inflation to become entrenched.
Second, the broader economy isn't sending any distress signals that would force the Fed's hand. While GDP growth slowed in the last quarter of 2025, underlying private demand remained healthy. The labor market is also in a balanced state—it's cooling from its previously red-hot pace, but it isn't fragile. With hiring and firing rates low, the economy appears stable enough to handle current interest rate levels. This gives the Fed the flexibility to wait for more conclusive inflation data without worrying about triggering a recession.
Finally, new uncertainties are complicating the outlook. A recent Supreme Court ruling that invalidated certain tariffs has created questions about potential refunds and future trade policy. This kind of uncertainty can make businesses hesitant to invest or hire, and it also clouds the near-term inflation picture. Goolsbee's cautious stance reflects a desire to avoid making policy decisions based on forecasts—like hoped-for productivity gains or the impact of tariff changes—and instead anchor them to realized economic data.
- Supercore Inflation: A measure of inflation that includes prices for services, but excludes the volatile categories of food, energy, and housing. It is closely watched by the Fed as an indicator of underlying, wage-driven inflation.
- PCE Price Index: The Personal Consumption Expenditures price index is the Federal Reserve's preferred measure of inflation. It tracks the change in prices of goods and services purchased by consumers throughout the economy.
- Restrictive Monetary Policy: A course of action by a central bank to slow down overheated economic growth. It involves raising interest rates to make borrowing more expensive, thereby reducing spending and curbing inflation.