Fed Officials Say "Inflation Remains High"... Cautious on Rate Path

Goolsbee: "The Issue Is Prices, Not Employment"
Williams: "Current Monetary Policy Is Appropriate for Price Stability"
Core PCE at 3.4%... Highest Since October 2023

Key officials at the U.S. Federal Reserve (Fed) acknowledged the possibility of a slowdown in inflation but maintained a cautious stance regarding the trajectory of interest rates.

On June 25 (local time), Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said in a CNBC interview, "There has been some improvement in service prices," but added, "Between the Fed's dual mandate of price stability and maximum employment, the clear issue right now is on the price side." He pointed out that core inflation remains too high and is not moving in the desired direction.

Oystan Goolsby, President of the Federal Reserve Bank of Chicago. Photo by AFP Yonhap News.

President Goolsbee's remarks came shortly after the release of the May Personal Consumption Expenditures (PCE) price index, which reignited market concerns about inflation. According to the U.S. Department of Commerce's Bureau of Economic Analysis (BEA), the May PCE price index rose 4.1% year-on-year, slightly below expectations.

The core PCE price index, which excludes volatile food and energy prices, increased by 3.4%, marking the highest level since October 2023. On a month-over-month basis, the PCE price index rose by 0.4%, and the core PCE price index increased by 0.3%, respectively.

President Goolsbee refrained from commenting on the future direction of interest rates. He expressed agreement with Fed Chair Kevin Warsh's recent move to reduce forward guidance—that is, advance communication—regarding the path of interest rates in the Fed's communication strategy.

President Goolsbee stated, "Not speculating about the interest rate path is a healthy change," and added, "Future rate decisions will depend on how the economy unfolds."

He explained that the key issue now is whether the recent increase in prices is a temporary shock or a persistent pressure. He noted that tariffs are pushing up goods prices, and that the rise in oil prices stemming from the Iran war is affecting energy and transportation service costs, but it remains uncertain how long these factors will persist.

While acknowledging the possibility that oil prices could quickly fall, he cautioned that it is too early to be optimistic about disinflation, given that service prices remain high.

In contrast, John Williams, President of the Federal Reserve Bank of New York, placed more weight on the possibility that inflationary pressures could ease going forward. In a speech at the Crane Money Fund Symposium held in Jersey City, New Jersey, he stated, "From the standpoint of the Fed's mandate of price stability, inflation is undoubtedly at a high level and is well above the 2% long-term target." However, he added, "The current monetary policy stance is appropriately positioned to bring inflation back to the 2% target."

President Williams cited several factors that could help lower inflation in the future, including the diminishing impact of tariffs, the possibility of easing energy price pressures from conflicts in the Middle East, and stabilized housing costs due to a slowdown in rent increases. He projected that inflation would decline to around 3.5% by the end of this year and reach the Fed's 2% target by 2028.

This suggests the timeline for achieving the inflation target has been pushed back. Previously, President Williams expected inflation could return to target levels next year, but this time he pointed to 2028.

The remarks by the two officials indicate that while the Fed is not ruling out the possibility of disinflation, it will be difficult to shift toward discussions of rate cuts. In particular, with core PCE inflation rising again in May, the likelihood has increased that the Fed will maintain a cautious stance at its next meeting.

Meanwhile, at the June Federal Open Market Committee (FOMC) meeting, the Fed held its benchmark interest rate steady. The market expects the Fed to wait and monitor additional inflation data, developments in the Middle East, and the pass-through effects of tariffs before making any move on rates.

This content was produced with the assistance of AI translation services.