Federal Reserve's Goolsbee: Don't Race to Cut Rates Due to Productivity Growth

ME News message. On May 7 (UTC+8), Chicago Federal Reserve Chair Goolsbee warned against instinctively cutting interest rates because productivity growth accelerates, since this phenomenon can sometimes push inflation higher. In pre-prepared remarks released ahead of a panel discussion at the Milken Institute Global Conference on Wednesday local time, Goolsbee said the Fed’s response to faster productivity growth “largely depends on whether the productivity growth happens unexpectedly or is expected to occur in the future.” He said that in the first case, inflation could be suppressed, allowing for interest-rate cuts. In the latter case, the extra investment and spending brought by productivity growth could push up inflation, which would require raising interest rates. He also stressed the need to be cautious about consumption and investment driven by growth expectations in the future. “The more hype there is, the greater the need for rate hikes to prevent overheating,” he said. (Source: Jin10)