Chicago Fed President: Slowing inflation may allow for cut rates

Chicago Federal Reserve President Austin Goolsbee said that slowing US inflation could give the central bank room to lower interest rates in the coming period.

In an interview with CNBC on Tuesday, Goolsbee added, “I am OK with moving to be in a better spot, and I think eventually, at a gradual pace, rates can come down a fair amount if we can get this stagflationary dust out of the air.”

He explained that the “neutral” benchmark is about 100 to 125 basis points (bps) lower than the current federal funds range of 4-4.25%.

However, Fed projections suggest that the neutral level would be consistent with a funds rate of around 3.1%, an area where Goolsbee said he feels “comfortable”, with inflation remaining near 2%.

This came after the Federal Reserve lowered key borrowing rate by 25 bps at last week's meeting, with two additional cuts anticipated by year-end.