Fed’s Goolsbee says U.S. debt ceiling deal avoids ‘extremely negative’ consequences

Fed’s Goolsbee says U.S. debt ceiling deal avoids ‘extremely negative’ consequences

28 May    Finance News, PMN Business, REU

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Chicago Federal Reserve Bank President Austan Goolsbee on Sunday welcomed news of a deal to suspend the U.S. debt ceiling, saying failure to forge an agreement would be “extremely negative” for the financial system and broader economy.

Interviewed on CBS’s “Face the Nation,” he declined to say whether he would support an interest-rate hike at the Fed meeting on June 13-14. He said the full impact of central bank rate increases to date had yet to be felt.

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“I try … to make it a point not to prejudge and make decisions when you are still weeks out from the meeting,” Goolsbee said. “We are going to get a lot of important data between now and then.”

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He said he was heartened by indications U.S. lawmakers will ratify the debt ceiling deal embraced by Republican congressional leader Kevin McCarthy and Democratic President Joe Biden.

“If you did not do that, the consequences for the financial system and for the broader economy would be extremely negative,” Goolsbee said. “Even the anticipation of these problems does have consequences on the economy, it does have consequences on financial markets.”

There is already “fear and uncertainty” just around interest rates, which the Fed has raised by a full five percentage points since March 2022, Goolsbee said.

Calling into question the value of U.S. debt – among the world’s safest and most widely held assets – “is not good for lending, is not good for the real economy… let’s just avoid it: let’s raise the debt ceiling and get onto the next thing.”

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Goolsbee said he believed the Fed could avoid recession.

“The actions that the Fed takes take months or even years to work their way through the system … there’s no doubt inflation is too high, still – it has come down – and we are just trying to manage. Can we get inflation down without starting a recession?”

Goolsbee is seen as being among the Fed’s more dovish policymakers, more sensitive to threats to the Fed’s mandate to keep Americans fully employed than to the dangers of high inflation, though he has joined his colleagues in raising rates so far this year.

After 10 straight interest-rate hikes that have by early this month brought the policy rate to a 5.00%-5.25% range, Fed policymakers have signaled they may skip raising rates in June to assess the impact of their policy tightening so far.

The latest data showing inflation is still running at more than double the Fed’s 2% target, and making slower progress than policymakers had hoped, has traders betting the Fed is not done raising rates yet.

Still to come before the Fed’s June rate decision is another monthly read on the U.S. unemployment rate, now at a decades-low of 3.4%, and on consumer price inflation.

(Reporting by Ann Saphir; Editing by Andrea Ricci and Howard Goller)

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