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Federal Reserve official Austan Goolsbee, highlighting the impact of global geopolitical risks on monetary policy, said the Fed may begin interest rate cuts later than expected.
He warned that interest rate cuts could be postponed until 2027, especially if a war with Iran were to keep oil prices permanently high.
In a statement on Tuesday, Goolsby said that high energy prices could slow the decline in inflation toward the Fed’s 2 percent target. In this scenario, he indicated, the Fed might have to wait longer before cutting interest rates.
Speaking at the Semaphore World Economic Conference, Goolsby reiterated his earlier prediction of multiple interest rate cuts by 2026. However, he stressed that this expectation could be postponed if current conditions persist and inflation remains high. Goolsby stated, “If we don’t see a drop in inflation and it remains at high levels, the timing of interest rate cuts could extend beyond 2026. Our primary responsibility is to bring inflation back to the 2 percent level.”
Goolsby, who had previously adopted a relatively optimistic stance, particularly believing that inflation caused by tariffs would be temporary, stated that this confidence has weakened in light of recent developments.
On the other hand, Goolsby also stated that not all scenarios are negative. He said that if the oil price shock originating from the Middle East proves temporary and inflation returns to a downward trend, interest rate cuts could be back on the agenda. However, he noted that in some cases, even interest rate increases could be on the table.
*This is not investment advice.