Austan Goolsbee remarks on the influence of tariffs on productivity, asserting that imported goods only account for 11% of GDP. Despite the short-term inflation expectations rising, long-term expectations remain unchanged, which is deemed crucial.
Goolsbee advocates for patience regarding the impact of tariffs and trade, suggesting that a non-retaliatory one-off tariff could justify rate cuts. Despite tariffs not boosting steel production and resulting in layoffs, he believes rates might decrease within 12-18 months.
Federal Reserve Rate Cut Predictions
Additionally, Citigroup now predicts the next Federal Reserve rate cut in June rather than May, maintaining their forecast of 125 basis points in cuts for the year. The market remains primarily unchanged following these discussions.
This portion outlines the view that the effects of tariffs, particularly on productivity, have perhaps been overstated. Goolsbee points out that only a small part of the country’s total economic output, just over one-tenth, is tied to imports. And even with an increase in short-run inflation forecasts, people remain steady in what they expect for price pressures years down the line. That’s reassuring, as it suggests long-term policy credibility is intact.
What’s especially telling is Goolsbee’s suggestion that should tariffs be limited in scope, and no retaliation follows, it wouldn’t block the Federal Reserve from reducing interest rates. He’s making it clear: rate cuts remain quite possible even with noise on the trade front, provided it’s contained. His reference to steel is insightful—earlier tariffs didn’t lead to more production and instead contributed to job losses. That detail gives weight to his argument. He anticipates some policy shift within 12 to 18 months, which is very specific and should not be taken lightly.
Meanwhile, Citigroup has revised its projection, nudging the likely onset of monetary easing to June instead of May. It still expects a total reduction of 125 basis points over the course of the year, meaning a fairly consistent and methodical loosening cycle if data allows. It’s worth noting markets hardly moved in response to all these developments, which may reflect that much of it had already been priced in or closely aligned with views already held.
Market Stability And Inflation Expectations
From our side, the consistency in long-term inflation views tells us that stability has not been shaken. The upward tilt in near-term forecasts might reflect temporary supply-side influences or market scepticism in timing, more than structural price shifts. Short-dated options, especially volatilities that react to policy event timing, could receive renewed attention on any firm hints of a June start to rate cuts.
We should stay sharp around event dates, particularly inflation prints or employment surprises, that could push expectations from mid-year closer to the present. The market is clearly unsure how sticky the short-term inflation readings will be, so any data out of line with expectations could drive rapid recalibration. That’s usually when dislocations offer opportunity.
If we’re approaching a slower pace of growth combined with stable long-term price forecasts, then overweighting positions sensitive to the front-end while being cautious further along the curve could result in better asymmetry. Also, anything that suggests broadening policy support without shocking the inflation outlook—say, a dovish hold paired with soft guidance—deserves attention.
Our takeaway: spreads and relative curve positioning may present more reward than betting on timing outright, at least until market conviction grows. Reaction to data surprises should be judged not just in isolation, but with regard to how sequential it begins to appear. Momentum builds not from one off-number but from consistency — and that is what we must track.
