Chicago Federal Reserve Bank President Austan Goolsbee says he sees no clear signals that the U.S. economy is veering off the "golden path" toward the Fed's 2% inflation goal and at the same time averting a recession, even as the recent surge in long-term Treasury yields has some analysts questioning exactly that.
"On the real side I feel like nothing has happened so far that is convincing evidence that we are off the golden path," Goolsbee said on Bloomberg's Odd Lots podcast, recorded on Tuesday and aired on Thursday. "I still feel like this is our goal and it's still possible."
The Fed's 5.25 percentage points of interest-rate hikes over the last 18 months has helped bring inflation down from its 40-year high last summer, Goolsbee and others have noted -- so far without the surge in unemployment that usually accompanies such a trajectory.
Inflation by the Fed's preferred gauge was 3.5% in August, half its peak monthly pace last year; unemployment was 3.8% in August, compared with 3.7% a year earlier.
Last month U.S. central bankers signaled they feel the Fed will likely need just one more quarter-point hike, bringing the policy rate to 5.50%-5.75%, to cement inflation's downward path. Their projections also showed they expect to end next year with only a slightly higher unemployment rate, of 4.1%, and a slightly lower policy rate, of 5.1%.
In the weeks since the Fed released those projections, Treasury yields surged to 16-year highs, marking abruptly tighter financial conditions that could cool the economy and the jobs market more quickly than anticipated.
Goolsbee said that the timing of the rise in long-rates is a puzzle. But the fact that they are higher compared with six months ago, he said, when stress in the banking sector had triggered widespread fear of an imminent recession, "is not a puzzle... it's clear that the long rates coming up is what you'd expect."
What could steer the economy from the "golden path," Goolsbee said, is a shock unrelated to the Fed's actions -- like a sustained rise in energy prices, or a protracted autoworker strike, or a government shutdown.
That's the kind of external shock that has undone previous soft landings, he said.
Should the rise in long-term yields go so far as to trigger a surge in unemployment or sharp slowdown in economic activity, the Fed will adjust, Goolsbee said.
"We absolutely monitor that and are thinking about that, and that could be a blow to either the financial or the real economy," Goolsbee said.
Right now, he said, "all eyes are on getting inflation down."
