WASHINGTON, Feb 17 (Reuters) - The U.S. Federal Reserve could approve "several more" interest rate cuts this year if inflation resumes a decline to the central bank's 2% target, Chicago Fed President Austan Goolsbee said on Tuesday, downplaying a recent weak consumer price report as masking strong service price increases.
Consumer price inflation for January was a cooler-than-expected 2.4%, but Goolsbee said he partly discounted that result because it was influenced by high inflation readings from early last year falling out of the comparison. Services inflation meanwhile was "not tamed," running at a higher 3.2% annual rate last month.
"If...we can show that we're on path to 2% inflation, I still think there's several more rate cuts that can happen in 2026," Goolsbee said on CNBC. "But we've got to see it" in coming data.
"I think we've been basically stalled out around 3% with some positive signs, but also some warning signs," Goolsbee said.
The Fed held its policy rate of interest steady in the 3.5% to 3.75% range at its January 27-28 meeting, and is expected to do so again at the next meeting on March 17-18.
Recent data has left the Fed in something of a holding pattern. Job growth in January was a stronger-than-expected 130,000 and the unemployment rate fell slightly to 4.3%, alleviating some concern that the labor market was about to falter and undercutting one argument for immediate rate reductions.
The return of inflation to the 2% target meanwhile remains a work in progress, with many policymakers still worried faster-than-desired price increases are at risk of becoming embedded, a reason to keep rates where they are.
Minutes of the Fed's January meeting will be released on Wednesday and may provide more detail on the depth of that concern while the Fed awaits the transition to a new chair. President Donald Trump has nominated former Fed Governor Kevin Warsh to lead the central bank when current Chair Jerome Powell's term ends in May, and investors currently do not expect a change in rates until the June 16-17 Fed session, which Warsh would lead if he is confirmed by the Senate in time.
Fed officials including Powell have said they do expect inflation to resume falling towards 2% by mid-year, but many like Goolsbee have said they want to see a clear trend confirmed in coming data.
The Fed sets its target using the Personal Consumption Expenditures price index, which is separate from the Consumer Price Index and has been stuck at around 2.8% since May through the most recent available statistical release for November. December PCE data is to be released on Friday and Fed officials have said they expect it to show little if any progress.
If inflation does appear on track to decline to 2%, Goolsbee said he considered a Fed policy rate of around 3% to be a "loose target" for a neutral rate of interest, a level that would require two to three quarter-point rate cuts.
The Fed at its March meeting will release new economic and rate projections. As of December the median projection was for only a single further rate cut this year, though the 19 policymakers were deeply divided, with eight of them seeing at least two quarter-point reductions.
Reporting by Howard Schneider; Editing by Andrea Ricci
