Fed official triggers new rate-cut warning

Fed official triggers new rate-cut warning Mary Helen Gillespie Sun, May 10, 2026 at 12:17 AM GMT+7 7 min read Rate cuts? Rate hikes? Another pause? Federal Reserve Bank of Chicago President Austan Goolsbee said all these options over interest-rate policy are on the table at the central bank right now. “I don’t see how you can look at the current situation and, at least to me, view that the only thing that’s on the table conceivably are rate cuts,” Goolsbee said May 8 in an interview on Bloomberg Television. Goolsbee’s comments add to the ongoing shift among Fed policymakers away from any consideration of a rate reduction in the near future. That’s driven largely by concerns over inflation due to an energy-price shock triggered by the Iran War. Goolsbee doesn’t vote on monetary policy this year, but will in 2027. He reiterated that he believed both options — a rate cut and a rate hike — are possible choices ahead for him and his colleagues. He also repeated that he’s anxious about inflation and sees price pressures beyond just the energy shock from the Iran War. “We’ve been above the 2% Fed target for five years now. We stopped making progress last year, and now the last three months, it’s going up instead of down,” Goolsbee told CNBC in an interview earlier that day. The Fed’s dual mandate from Congress requires maximum employment and stable prices. Lower interest rates support hiring but can fuel inflation. This risks fueling further inflation, potentially leading to an inflationary spiral. Higher rates cool prices but can weaken the job market. This increases the cost of borrowing and further stifles economic activity. Traders are currently pricing in the next interest-rate cut for mid-to-late 2027, according to the CME FedWatch Tool. And as I reported, bond traders are rapidly reshaping their outlook on U.S. monetary policy, increasing bets that the Fed could raise interest rates before cutting them as persistent inflation risks and geopolitical tensions upend dovish expectations. The Kalshi prediction market estimates a 44% chance of a Fed rate hike before July 2027. The Consumer Price Index for March pointed to an inflation rate of 3.3%, well above the Fed’s 2% goal. The April CPI report will be released May 12. The Bureau of Economic Analysis released the March 2026 Personal Consumption Expenditures -- the Fed’s preferred inflation gauge -- on April 30 showing an acceleration in headline inflation largely driven by energy costs. Headline PCE (Year-over-Year): 3.5% up from 2.8% in February. Core PCE (Year-over-Year): 3.2% (excluding food and energy) up from 2.9% in February. Economists at Nationwide expect the inflation rate to peak sometime this summer at around 4.5%, more than double the Federal Reserve’s 2% target, The New York Times reported. Soaring gas prices have put the brakes on the spending habits of millions of Americans, hitting their wallets hard and fueling America’s persistent economic inflation-driven K-shaped divide, according to a new study by Federal Reserve economists. Despite rising energy costs fueled by the Iran War, U.S. employers added more jobs than expected for a second month and the unemployment rate held steady in April, the Bureau of Labor Statistics reported May 8. Nonfarm payrolls rose 115,000 last month after an even bigger surge in March, marking the strongest two-month increase since 2024. The unemployment rate was unchanged at 4.3%. White House Council of Economic Advisors Director Kevin Hassett told Bloomberg that the April jobs report should not cause the Fed to raise interest rates, describing the data as “blockbuster.” The Federal Open Market Committee voted 8-4 April 29 to leave the benchmark Federal Funds Rate unchanged at 3.5% to 3.75%. It was the Fed’s third pause after cutting rates by 75 basis points during its last three meetings of 2025 due to a weakening labor market -- and the first time in more than 30 years the FOMC vote reflected four dissents. Related: Hawkish dissents fuel alarming warning to Fed rate outlook “The center is moving toward a more neutral place,” outgoing Fed Chair Jerome Powell told the post-meeting press conference, describing the U.S. economy as “resilient” in spite of the recent price shocks from the Ukraine and Iran wars, the pandemic and President Donald Trump’s tariffs. A neutral state is when an economy operates at sustainable growth with stable inflation and full employment without overheating or recessionary pressure. It can also mean interest rates move in either direction. Judging from the language in its official post-meeting statement, the FOMC appeared to signal it could resume cutting benchmark interest rates which guide short-term borrowing from credit cards to business loans, and even indirectly, mortgage rates in the stagnant U.S. housing market. The primary point of contention: the two magic words “additional adjustments” which in Fed-speak meant a signaling of resumption of rate c

Fed official triggers new rate-cut warning

Key takeaways

More in business