Federal Reserve Bank of Chicago President Austan Goolsbee said policymakers could approve several additional interest rate cuts this year if inflation resumes a steady decline toward the central bank’s 2% target, highlighting how closely future policy decisions remain tied to incoming economic data.

Speaking in recent interviews, Goolsbee acknowledged that inflation has cooled from previous highs but emphasized that underlying price pressures, particularly in services, remain stubborn. His comments come as the Federal Reserve holds interest rates steady between 3.5% and 3.75%, waiting for clearer signals about the direction of inflation and economic growth.

While markets continue to anticipate eventual easing, policymakers appear cautious about moving too quickly after years of elevated inflation.

Services inflation remains a sticking point for policymakers

Although the latest Consumer Price Index report showed inflation rising 2.4% year over year, Goolsbee said part of the slowdown reflected statistical comparisons rather than a broad-based cooling in prices. Services inflation, which tends to be slower to adjust, remains elevated around the 3% range, suggesting underlying pressure has not fully eased.

Economists often view services inflation as more persistent because it is closely tied to wages, housing costs, and long-term contracts. As a result, even modest improvements in headline inflation may not be enough to convince policymakers that price stability has been restored.

Goolsbee described the current environment as one with both “positive signs” and “warning signals,” reinforcing the Federal Reserve’s data-dependent approach.

Fed maintains holding pattern amid mixed economic signals

The Federal Reserve chose to keep rates unchanged at its January meeting, reflecting a balance between easing inflation concerns and signs of resilience in the labor market. Recent employment data showed stronger-than-expected job growth and a slight decline in unemployment to around 4.3%, reducing immediate pressure on the central bank to cut rates.

At the same time, policymakers remain wary of moving too quickly. Inflation measured by the Fed’s preferred gauge, the Personal Consumption Expenditures price index, has remained near 2.8% for months, underscoring how progress toward the 2% target has slowed.

Goolsbee said additional cuts remain possible but stressed that officials need to see sustained improvement before shifting policy direction.

Leadership transition adds another layer of uncertainty

The Federal Reserve’s outlook is also shaped by an approaching leadership change. President Donald Trump has nominated former Fed Governor Kevin Warsh to replace Chair Jerome Powell when Powell’s term ends in May, a transition that could influence how markets interpret future rate decisions.

Investors are watching closely to see whether new leadership might alter the pace of rate cuts or change the central bank’s communication strategy. Futures markets currently suggest traders expect the next rate reduction to arrive around mid-year, though policymakers remain divided over the number of cuts that may ultimately occur.

Neutral rate estimates suggest room for easing if inflation cools

Goolsbee indicated that a federal funds rate near 3% could represent a rough estimate of a neutral policy stance, implying two or three additional quarter-point cuts if inflation trends continue improving. However, he emphasized that such moves depend on confirming a sustained downward path toward the Fed’s inflation objective.

Upcoming economic projections and new inflation data releases are expected to play a key role in shaping expectations ahead of the next Federal Open Market Committee meetings.

For now, the Federal Reserve appears committed to a cautious approach, balancing optimism about cooling inflation with lingering concern that price pressures could become entrenched if policy loosens too quickly.