US Fed’s Goolsbee: If tariffs are avoided, policy rate can come down

NEW YORK - Chicago Federal Reserve Bank president Austan Goolsbee on May 29 said he believes that if big tariffs could be avoided, either through trade deals or otherwise, the US central bank could likely cut interest rates given the underlying strength of the economy and the direction of inflation.

Comparing

the economic effect of tariffs

to a layer of fat atop an otherwise healthy set of abdominal muscles, “you’ve got to get all of what’s on top of there off before you can see it,” Mr Goolsbee said, at the 2025 Mackinac Policy Conference.

“And I feel a little bit like that on the economy. You know, if we could just get this off of there, there’s a six-pack underneath.”

Mr Goolsbee did not comment directly on a May 28 ruling by a US trade court that

blocked many of the tariffs

put on by the Trump administration that have threatened to push up inflation and slow economic growth, including

the “Liberation Day” levies

from April 2.

Before that date, Mr Goolsbee said, the labour market was stable and inflation was heading towards the Fed’s 2 per cent goal, conditions that would allow the Fed to bring the policy rate down from its current 4.25 per cent to 4.5 per cent range and towards its long-term settling point. Based on the most recent Fed policymaker projection, that long-term neutral rate is around 3 per cent.

For now, though, uncertainty over tariffs is causing businesses to have a “pencils down” moment as they wait for clarity on trade policy, Mr Goolsbee said.

The Fed finds itself in a similar situation, with policymakers particularly worried about the possibility of tariffs disrupting downward progress on inflation and pushing up the unemployment rate. REUTERS