Finance
Chicago Fed President Goolsbee says if economy deteriorates, Fed will ‘fix it’
Chicago Federal Reserve President Austan Goolsbee on Monday vowed that the central bank would react to signs of weakness in the economy and indicated that interest rates could be too restrictive now.
Asked whether weakening in the labor market and manufacturing sector could prompt a response from the Fed, Goolsbee did not commit to a specific course of action but said it does not make sense to keep a “restrictive” policy stance if the economy is weakening. He also declined to comment on whether the Fed would institute an emergency intermeeting cut.
“The Fed’s job is very straightforward: maximize employment, stabilize prices and maintain financial stability. That’s what we’re going to do,” the central bank official said during an interview on CNBC’s “Squawk Box” program. “We’re forward-looking about it. So if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.”
The interview occurred with markets in turmoil.
Futures tied to the Dow Jones Industrial Average were off nearly 1,300 points, or close to 3%, as Treasury yields plummeted. The moves continued a downward trajectory that began Thursday, a day after the Fed opted not to lower interest rates, raising concerns that policymakers were behind the curve as inflation falls and the economy weakens.
Those fears were heightened Friday when the Labor Department said nonfarm payrolls increased by just 114,000 and the unemployment rate climbed to 4.3%, triggering a signal known as the Sahm Rule that the economy could be in recession.
However, Goolsbee said he does not believe that to be the case.
“Jobs numbers came in weaker than expected, but [are] not looking yet like recession,” he said. “I do think you want to be forward-looking of where the economy is headed for making the decisions.”
He also said, however, that Fed policy is restrictive now, a position it should only be in if the economy looks like it is overheating. The central bank has kept its benchmark rate in a range between 5.25% and 5.5% since July 2023, the highest level in some 23 years.
“Should we reduce restrictiveness? I’m not going to bind our hands of what should happen going forward because we’re still going to get more information. But if we are not overheating, we should not be tightening or restrictive in real terms,” he said.
Policymakers have been focused on the “real” fed funds rate, which is the Fed’s benchmark minus the inflation rate. As inflation declines, the real rate increases — unless the Fed chooses to cut. The real rate now is around 2.73%. Fed officials judge the long-term real rate to be closer to 0.5%.
Markets expect the Fed to head into an aggressive easing mode, starting in September with a 0.5 percentage-point rate cut that is now fully priced in as measured by 30-day fed funds futures contracts. Traders expect the Fed to slice 1.25 to 1.5 percentage points off the funds rate by the end of the year, according to the CME Group’s FedWatch Tool.
Jakub Porzycki | Nurphoto | Getty Images
LONDON — Britain’s financial services watchdog on Monday announced a new tie-up with U.S. chipmaker Nvidia to let banks safely experiment with artificial intelligence.
The Financial Conduct Authority said it will launch a so-called Supercharged Sandbox that will “give firms access to better data, technical expertise and regulatory support to speed up innovation.”
Starting from October, financial services institutions in the U.K. will be allowed to experiment with AI using Nvidia’s accelerated computing and AI Enterprise Software products, the watchdog said in a press release.
The initiative is designed for firms in the “discovery and experiment phase” with AI, the FCA noted, adding that a separate live testing service exists for firms further along in AI development.
“This collaboration will help those that want to test AI ideas but who lack the capabilities to do so,” Jessica Rusu, the FCA’s chief data, intelligence and information officer, said in a statement. “We’ll help firms harness AI to benefit our markets and consumers, while supporting economic growth.”
The FCA’s new sandbox addresses a key issue for banks, which have faced challenges shipping advanced new AI tools to their customers amid concerns over risks around privacy and fraud.
Large language models from the likes of OpenAI and Google send data back to overseas facilities — and privacy regulators have raised the alarm over how this information is stored and processed. There have meanwhile been several instances of malicious actors using generative AI to scam people.
Nvidia is behind the graphics processing units, or GPUs, used to train and run powerful AI models. The company’s CEO, Jensen Huang, is expected to give a keynote talk at a tech conference in London on Monday morning.
Last year, HSBC’s generative AI lead, Edward Achtner, told a London tech conference he sees “a lot of success theater” in finance when it comes to artificial intelligence — hinting that some financial services firms are touting advances in AI without tangible product innovations to show for it.
He added that, while banks like HSBC have used AI for many years, new generative AI tools like OpenAI’s ChatGPT come with their own unique compliance risks.
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