Fed’s Goolsbee says it’s a mistake to rely too much on market reactions


(Bloomberg) – Central bankers need to supplement what they learn from incoming data with clues from the real economy and avoid putting too much weight on financial markets, Federal Reserve Bank of Chicago president Austan Goolsbee said.

In his first public address since taking office last month, Goolsbee acknowledged that it was tempting to lean on investors’ immediate response to incoming news as economic data comes in with a delay.

“But it is a danger and a mistake for policymakers to rely too heavily on market responses,” he said in remarks prepared Tuesday for an event at Ivy Tech Community College in Goshen, Indiana. “Our work is ultimately judged by what’s happening in the real economy.”

Goolsbee, a voter on this year’s policy-making Federal Open Market Committee, did not address monetary policy in the text of his speech.

Data bouncing around can make it hard to see what’s going on in the economy, Goolsbee said Tuesday.

“So it’s important to complement this traditional data with observations in the field of the real economy,” he said. “This is especially true when things are as strange and up in the air as they were during much of the pandemic.”

The Fed quickly raised interest rates last year in an effort to cool inflation. Policymakers slowed the pace of rate hikes and enacted a quarter of a percentage point hike at their meeting earlier this month, but said more hikes are likely needed. They are fighting to fully curb price pressure amid a tight labor market and enthusiastic consumer.

The benchmark interest rate is currently within a target range of 4.5% to 4.75%, and according to the median estimate from Fed officials in December, it passed slightly above 5% this year. New projections will be released after the March 21-22 central bank meeting.

Goolsbee said in October, long before the Chicago Fed announced its election as president, that a 5% interest rate spike “makes a little sense to me.” While inflation data showed signs of slowing late last year, a rebound in January’s numbers is what investors are counting on for the Fed to raise interest rates by as much as 5.4%.

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