By Ann Saphir
April 14 (Reuters) – The Federal Reserve may need to wait until 2027 to cut interest rates if an extended bout of high oil prices from the Iran war delays inflation’s progress towards the U.S. central bank’s 2% goal, Chicago Federal Reserve President Austan Goolsbee said on Tuesday.
“I thought there could be even multiple rate cuts in 2026; the longer this goes where we never got to see the decrease in inflation (and) if the inflation stays up, realistically, I think that starts pushing it out of ’26,” Goolsbee told AP at the Semafor World Economy conference. “It’s our job to get inflation back to 2%,”
Fed policymakers in March opted to keep short-term interest rates steady in their current 3.50%-3.75% range, and a majority projected at least one interest-rate cut would likely be appropriate this year.
President Donald Trump blames Fed Chair Jerome Powell for withholding the steep rate cuts he feels the U.S. economy is ready for, and has said believes that Kevin Warsh, Trump’s nominee to replace Powell, will deliver them.
The remarks from Goolsbee and others suggest, however, that Warsh will have his work cut out for him given pressures on inflation.
Based on the latest data, economists on Tuesday were projecting that underlying inflation by the measure the Fed uses to gauge where prices are heading probably surged to 3.2% in March.
That would be the largest gain in the so-called core personal consumption expenditures price index in two years.
Before the Iran war sent oil prices upward and lifted U.S. gasoline prices to over $4 a gallon, Goolsbee was among the more optimistic of Fed policymakers that tariff-driven inflation would recede this year and allow the Fed resume reducing interest rates. He’s less confident now.
“There are circumstances where rates could go up,” he said. “There are circumstances where all of this proves temporary: we resolve the oil price shocks in the Middle East and we go back and inflation comes down and it looks like we’re headed back to 2% and then rate decreases are on the table, too.”
San Francisco Fed President Mary Daly told Reuters last week that she too is ticking through various possibilities based on how long oil prices stay high, with a hold on rates, or a possible rate cut, more likely than a rate hike in her view.
(Reporting by Ann Saphir; Editing by Chizu Nomiyama )
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