Failure to forge a debt deal would be ‘extremely negative’ for financial system: Chicago Fed's Goolsbee
1 min read 29 May 2023, 02:31 AM ISTGoolsbee says he was heartened by indications US lawmakers will ratify the debt ceiling deal embraced by Republican congressional leader Kevin McCarthy and Democratic President Joe Biden
PremiumWelcoming the news of a deal to suspend the US debt ceiling, Chicago Federal Reserve Bank president Austan Goolsbee on Sunday said failure to forge an agreement would be “extremely negative" for the financial system.
Goolsbee in an interviewed on CBS said that he was heartened by indications US 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."
He declined to say whether he would support an interest-rate hike at the Fed meeting on June 13-14.
“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."
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.
He said the full impact of central bank rate increases to date had yet to be felt.
“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?"
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.
(With inputs from agencies)
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