Chicago

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, has expressed optimism about the possibility of the United States avoiding a recession, even as the central bank continues to raise interest rates in an effort to combat inflation.

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In a recent interview with CNBC, Goolsbee referred to this optimistic scenario as the "golden path," although he acknowledged that it comes with its share of risks and uncertainties.

"I've been calling that the golden path, and I think it's possible, but there are a lot of risks and the path is long and winding," Bloomberg quoted Goolsbee as saying, emphasising the complexities of the current economic landscape.

Goolsbee drew attention to the unemployment rate, which was at  3.8 per cent last month and remained remarkably close to its level from the previous year when inflation was significantly higher than it is presently. This comparison underscores the Federal Reserve's challenge of achieving both full employment and price stability.

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According to a report by Bloomberg, the Federal Reserve officials recently decided to maintain their benchmark lending rate at a 22-year high, with the expectation of one more rate hike for the present fiscal year. Additionally, policymakers signalled a more positive outlook for a "soft landing" for the U.S. economy but acknowledged that interest rates are likely to remain elevated for an extended period.

The report cited Chair Jerome Powell reassured that policymakers would approach the end of the rate-hiking cycle with caution while maintaining their commitment to bringing inflation back to the 2 per cent target. In July, the preferred inflation gauge for Fed officials saw a 0.2 per cent increase for the second consecutive month, marking the smallest consecutive gains since late 2020.

Goolsbee, who had previously noted progress in monthly core inflation data, reiterated that the time is rapidly approaching for discussions to shift from how high to raise rates to how long they should be held at elevated levels. The Federal Reserve will be closely monitoring fresh inflation data for August, set to be released on Friday, to inform their ongoing policy decisions.

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(With inputs from Bloomberg)

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