Austan Goolsbee is the president of the Chicago Fed.  Brendan McDermid/ReutersLiz Hoffman: Can we declare victory on a soft landing? Austan Goolsbee: That’s a little misleading because it connotes a stopping point. It was an achievement for the US and other major economies around the world in 2023 to bring inflation down — almost as much as it’s ever come down in a single year — without a recession. Now we’re in a second part of the job, which is trying to freeze the economy where it is right now. How sacrosanct is that 2% inflation target? Why not just declare victory at 2.5%? Totally sacrosanct. When the Fed announced the 2% inflation target in 2012 and made it official, I was critical because I thought it was overly precise for a data series with a lot of noise in it. But that is now a sacred promise, and I’ve come, if not a full 180 degrees, maybe 178 degrees on this. The target was an anchor when inflation surged and kept things from spiraling. You warned last year about the timing of rate cuts and the danger of waiting too long. We’ve pulled the turkey out of the oven — how worried should we be about residual heat? The hardest thing a central bank does is get the timing exactly right at moments of transition. I’ve gotten to know Chair Powell pretty well, and he is a first-ballot Hall of Fame Fed chair. He has shown astoundingly good judgment. The question now is: We had a lot of increases in rates and we held them high for a long time, and how much of that cumulative tightening is still coming through?  If you had said, before the pandemic, that the Fed is going to raise rates 500-plus basis points in a single year, most people would have predicted deep recession, if not collapse. And that didn’t happen. Why? Normally, the cyclical stuff is also the rate-sensitive stuff, like housing and cars and construction. So when it’s overheating, you raise rates and it tends to slow down. This time, not going to the dentist or going out to a restaurant — that was what drove the recession. Those are less rate-sensitive. So that scrambled the transmission mechanism. Let’s talk about Fed independence. We heard what Donald Trump said, but Democratic politicians were publicly calling for rate cuts, too. Countries where the central bank is independent, where the sitting administration does not get to dictate what the interest rate should be, have lower inflation rates, higher growth, lower unemployment. The outcomes are a lot better. But isn’t there an argument for the Fed to be more tethered to politics? For example, that third round of pandemic stimulus was not your decision but it made your job harder by fueling inflation. It’s like my Midwest motto: “There is no bad weather. There is only bad clothing.” The Fed’s job should be: You tell us the conditions, and then we will react. | 
