DETROIT, Feb 6 (Reuters) - A full-employment economy with solid growth and falling inflation will let the U.S. Federal Reserve continue cutting interest rates, though uncertainty about the impact of tariffs and other policy changes argues for a slower approach, Chicago Fed President Austan Goolsbee said on Thursday.
"We have kind of settled in at full employment. Inflation...is looking better...If conditions keep like that rates will be lower than they are today," Goolsbee said in comments to reporters at an auto symposium. "The more dust we throw in the air that makes it hard for us to calibrate what the conditions actually are...The more we have to wait and see. We just want to be confident we are not overheating and that the job is in fact done."
Ahead of key jobs data to be released on Friday, Goolsbee said he was increasingly confident that the U.S. economy had "settled in" at around full employment, with less risk that tight Fed monetary policy would lead to a rising unemployment rate.
While inflation has on a headline basis made seemingly little progress over the past six months, and remains around half a percentage point above the central bank's 2% target, Goolsbee attributed much of that to comparison with a jump in inflation last year - a "base effect" that should disappear over the next few months.
The components of inflation, he said, seem to point to easing price pressures.
The big unknown, he said, is how the imposition of tariffs by the Trump administration, or other policies like the deportation of immigrants, may affect an economy that in many ways has outperformed the Fed's expectations.
The central bank has to take the administration's steps as a given, Goolsbee said, but the uncertainty is a reason to move slowly.
As the Fed approaches a "neutral rate" and possible endpoint to its rate cutting, "it would make sense...to slow down," Goolsbee said.
"As you've added policy uncertainty...it made the environment even foggier...Where we are going to land is a fair bit below where we are today but the speed at which we get to that has been made a little shallower."
The Fed held its benchmark rate steady last week in the 4.25% to 4.5% range after cutting a full percentage point over the final three meetings of 2024.
Reporting by Howard Schneider; Editing by Andrea Ricci
