The President of the Chicago Federal Reserve, Austan Goolsbee, believes that the Federal Reserve could lower short-term rates over the next 12-18 months. This is especially likely once the uncertainty surrounding tariff policies is resolved. “So far we’ve had excellent inflation reports and, surprisingly, little direct impact from tariffs,” Goolsbee said.
“I don’t know if that will remain true in the next 1-2 months. However, I still think that underneath all the tariff ‘dirt in the air’, rates can come down over 12-18 months.”
Goolsbee stressed that if economic conditions stabilize, the Fed’s dual mandate of promoting maximum employment and stable prices appears achievable. Despite some concerns about the temporary effects of tariffs on inflation, he pointed out that the recent PCE inflation print may have been the ‘last vestige’ of the pre-tariff impact.
This outlook offers a cautiously optimistic view on the Fed’s future monetary policy. It also reflects the ongoing analysis of economic indicators amid current global trade uncertainties. The President of the Federal Reserve Bank of Dallas, Lorie Logan, recently acknowledged both persistent inflation pressures and rising market uncertainty.
However, she emphasized that the US economy continues to show resilience despite these challenges. “The labour market remains stable and robust,” said Logan.
Goolsbee optimistic about rate cuts
“Although inflation is still somewhat above our target, our current approach to monetary policy is designed to wait patiently and be ready to act if necessary.”
Logan noted that a significant risk would be if higher short-term inflation expectations become entrenched. She pointed out that it is the Fed’s responsibility to ensure that inflation does not become a persistent issue. She also mentioned the potential impact of market volatility and economic uncertainty: “Market volatility and uncertainty could cause households and businesses to pull back, but we believe our monetary policy is well-positioned to address any materializing risks.”
Regarding tariffs and their influence on inflation expectations, Logan stated that any changes could have significant ramifications.
However, she expressed confidence that the Fed is prepared to respond to any such developments to maintain economic stability. A look at the FX option expiries on 3 June reveals key levels for EUR/USD. The options are set at the 1.1400 and 1.1450 levels, which could influence price action within this range during the trading session.
Despite the presence of these option expiries, broader market dynamics continue to play a significant role. This includes the overall dollar strength and prevailing risk sentiment, which have been major drivers of market movement recently. Today, the dollar has managed to stabilize somewhat after previous declines.
However, uncertainties persist due to the incoherent trade policies from the US administration. As always, traders should consider these factors alongside their own analysis to make informed decisions.
