Chairman of the Federal Reserve of Chicago: Optimistic about the decline in inflation in 2025.

Chicago Federal Reserve Bank President Austin Gorsby said on Wednesday that he still expects inflation to continue to decline in 2025, but also pointed out some potential uncertainties and risks. Speaking at the 2025 Midwestern Economic Outlook Forum hosted by the Wisconsin Bankers Association, Gorsby said during a Q&A session, "I still see continued progress. It's important to take a long-term view on inflation." He added, "Monthly data can have 'noise' so caution is advised. But if trends are consistent over several months, that's a signal. Overall trends indicate improvement in inflation. I remain optimistic for 2025, believing we can achieve sustained economic growth and a soft landing." Gorsby noted that uncertainties affecting inflation include potential fiscal policies, geopolitical factors, and broader economic performance. Despite a 2.9% year-on-year increase in the Consumer Price Index (CPI) in December, higher than economists' average predictions and November's increase, this was mainly driven by significant fluctuations in energy prices. Core CPI (excluding energy and food prices) increased by 3.2% year-on-year, lower than November's increase and below market expectations. The Federal Reserve's long-term inflation target is a 2% annual growth rate based on the Personal Consumption Expenditures Price Index. Gorsby specifically focuses on service prices and housing prices. He noted that while commodity prices have largely returned to pre-pandemic inflation levels, inflation in service prices, though still high, is gradually slowing down. "Over the past few years, our biggest challenge has been that housing inflation remains significantly higher than pre-Covid levels," Gorsby said. "But in recent months, we have made steady progress in housing inflation, which is encouraging." However, he also pointed out that housing price changes are slower. Rental contracts typically renew every 12 months, while the frequency of home sales is lower. In addition, the Fed cannot directly increase housing supply, while housing shortages remain a major issue in many parts of the U.S. "The Fed has only one tool - interest rate adjustments," Gorsby metaphorically said. "Our tool is like a screwdriver - it's great if your dishwasher handle is loose. But if you need to make breakfast, it's not so useful." Gorsby, who has been serving as the Chair of the Chicago Fed since 2023, is also a voting member of the Federal Open Market Committee this year. He declined to comment on the specific impact of policies proposed by the incoming Trump administration (including trade, taxes, and immigration) on economic growth or inflation. He stated that the Fed should consider fiscal policy as a data point when making rate decisions. Gorsby quoted a Midwestern proverb, saying, "There is no bad weather, only bad clothing." He explained, "You tell me the weather, I'll tell you what coat to wear. In my view, the Fed should also take this approach to fiscal policy - accepting the established conditions and analyzing scenarios that could affect employment or prices." On Wednesday, the interest rate futures market indicated a less than 3% likelihood of a rate cut at the Fed's next meeting on January 28-29. The market generally expects only one 25 basis points rate cut in 2025. Despite fluctuations in inflation data and market trends, Gorsby said he remains confident in the future economic outlook and emphasized the importance of caution in uncertain times.