Chicago Fed President Austan Goolsbee has refrained from pre-committing to Fed’s actions in September, insisting that every meeting is crucial when navigating the transition point. “When you’re around the transition point, every meeting is a live meeting and you’re trying to figure out trends, not just reflect one month’s data,” Goolsbee said yesterday.

Goolsbee is “guardedly optimistic” about Fed’s ability to stick to what he terms the “golden path,” bringing down prices without inducing a recession. He emphasized the importance of watching how core goods and housing inflation evolve in the coming months to remain on this path.

“Those are the two components that over the next three to six months, let’s call it, if we are to succeed to stay on the golden path, we’ve got to see progress on those two parts of inflation,” he said. He added that progress on services inflation isn’t currently necessary.

He also shared his perspective on the link between wages and inflation, suggesting that wages are more of a lagging indicator rather than a predictor of inflation. According to Goolsbee, if Fed officials focus too much on wages when shaping their policy, they could risk overshooting interest rates.

Fed Governor Christopher Waller offered a cautious but upbeat assessment of recent US economic indicators in a CNBC interview today. Describing the previous week’s data as “a hell of a good week,” Waller emphasized that positive trends, particularly in inflation, would allow Fed to “proceed carefully” on interest rates.

Waller stated that inflation remains Fed’s primary concern at this time. “The biggest thing is just inflation,” he said, adding that consecutive favorable reports have been encouraging. However, he refrained from being overly optimistic, noting that Fed needs to “see whether this low inflation is a trend or if it was just an outlier or a fluke.”

His cautious tone comes from recent history. “We’ve been burned twice before,” Waller observed. In both 2021 and the end of 2022, initial indications suggested inflation was stabilizing, only to shoot up or be revised away later. As a result, Waller emphasized the need for a more sustained pattern of data before making any conclusive statements. “I want to be very careful about saying we’ve kind of done the job on inflation until we see a couple of months continuing along this trajectory,” he elaborated.

When asked about the possibility of further tightening, Waller insisted that decisions would be data-dependent. He did, however, reassure that one more rate hike wouldn’t necessarily throw the economy into recession. “It’s not obvious that we’re in real danger of doing a lot of damage to the job market, even if we raise rates one more time,” he stated.

Fed is widely expected to leave its benchmark interest rate unchanged at 4.25–4.50% today. With no update to its economic projections or dot plot this time, attention will turn squarely to the post-meeting statement and Chair Jerome Powell’s press conference.

The prevailing message is likely to be one of patience, as policymakers face mounting uncertainties tied to the unresolved tariff war and its eventual economic impact.

Central to Fed’s wait-and-see approach is the need for clarity on two fronts: whether US President Donald Trump’s reciprocal tariffs are fully enacted, and how inflation expectations evolve in response. These factors, especially in light of ongoing geopolitical and trade risks, argue against any near-term policy moves.

As such, June is seen as too soon for a shift, with the expected to remain on hold until more definitive clarity emerge, probably not until the tariff ceasefire expires in early July.

Market pricing reflects this outlook top. Fed funds futures assign just a 32% chance of a cut in June, but expectations firm up thereafter, with roughly 75% probability of three 25 bps cuts by year-end, bringing rates down to 3.50–3.75%.

Chicago Fed President Charles Evans he didn’t see an “outsized risk of a breakout in inflation”. And as long as that picture continues Fed can “increase rates gradually while monitoring any rising inflationary pressures.”

Evans was indeed referring to the risk of 70s style overheating in inflation, as central banks fell behind the curve. And Fed was forced to push up interest rates aggressively in response, which ensued a recession.

But this time, he didn’t expect inflation to pick up as quickly or as problematically as it did in the 70s. And therefore, “the federal funds rate does not need to be increased as much above its neutral setting as in the past when trend inflation needed to be taken down several notches.” And, “gradual policy increases in this context make sense—certainly as a way to limit the damage if policy ever actually becomes overly tight too soon.”