"If inflation progress reverses, [it] could merit rate hikes," Austan Goolsbee, president of the Chicago Fed, said in an interview with CNN.
The Federal Reserve (Fed) is planning to cut interest rates in the coming months, for the first time in more than four years, if it can get US inflation back to its target of 2% a year.
Inflation, as measured by the Consumer Price Index, stood at 3.1% in November. It was at a four-decade high of 9.1% some 18 months ago as trillions of federal relief spending over the coronavirus pandemic combined with supply chain breakdowns to send prices soaring.
The Fed responded to the runaway inflation pressure by raising interest rates 11 times between March 2022 and July 2023.
The central bank’s chairman, Jerome Powell, said in December that those rate hikes had brought the Fed "very far" in its fight against inflation. But he also cautioned that it may take longer than anticipated for rate cuts to begin, given the continued presence of inflationary pressures in the financial system.
The Fed’s next decision on rates would be January 31. In his speech, Goolsbee reinforced the central bank’s stance that markets should be focusing on economic data for any cue on interest rates.
"If we continue to make surprising progress faster than was forecast on inflation, then we have to take that into account in determining the level of restrictiveness," Goolsbee said. As inflation comes down, "we would clearly be evaluating the responsiveness."
"We need to see more progress on housing inflation," he singled out soaring home prices as one area of concern for the Fed.
US home prices hit all-time highs for a ninth month in a row in October amid chronic short supply of houses and rising interest rates.