Federal Reserve Bank of Chicago President Austan Ghoolsby warns that inflation risk could outweigh cases of more interest rate cuts. He stressed that aggressively lowering interest rates could undermine central bank progress, including price pressure.
Shutdown Uncertainty Cloud Fed inflation focus and rate reduction decisions
His comments came at the Midwest Agricultural Conference in 2025, where he discussed the economic outlook amid the possibility of government shutdowns. Goolsbee said the Fed is closely monitoring inflation trends. His views reflected the views of Fed Governor Christopher Hammack.
Goolsbee explained that the period and scope of government closures will play a role in shaping the Fed’s policy outlook. His warning came when the market wanted further interest rate cuts to ease borrowing terms.
“Not every shutdown leaves a permanent economic mark,” he noted, noting that short, limited closures rarely undermine overall growth. Still, he highlighted that long-term confusion can complicate decision-making. Especially when key government data the Fed relies on to assess inflation and decide on rate reductions is released.
Data blackouts pose important risks to markets and Fed policies
Financial experts have repeated Ghoulsby’s attention. Goldman Sachs economists noted that weekly shutdowns can temporarily trim growth. However, it could potentially rebound once funding resumes.
However, a suspension of federal data reported during shutdowns could leave incomplete information for policymakers. This complicates the Fed’s decision in finding a balance between growth and inflation, taking into account future interest rate reductions. Former Fed official Stephen Milan is seeking consecutive interest rate cuts that suggest a more offensive path.
Stocks, bonds and dollars have been hit variously in previous shutdowns. However, the current situation seems more fragile. Inflation remains higher than the Fed’s 2% target, with investors observing whether interest rate cuts have a positive effect on inflation. Wells’ Fargo Doug Beath also said it would be very intense in the market if the closure was extended.
Balance of inflation and growth risks during future interest rate reductions
This review shows the crunches that the central bank is experiencing. On the one hand, growth can slow down as closure leads to sluggishness, and potential unemployment can justify slackness. On the other hand, sustained inflation means that authorities must be aware of early aggressive speed reductions. Some market voices, such as Scott Bessent, argue that the Fed should consider sharper speed reductions (such as 50 bps) to ease conditions more quickly.
Goolsbee stressed that while reducing temporary meals and pay delays, most federal workers will ultimately recover their income and limit the broader economic shock. He said the greater risk, he said, is how long the financial uncertainty complicates the timing of fighting inflation and possible rate reductions.