Fed's Goolsbee Rejects Calls to Cut Rates for Debt Relief, Warns of Inflation Risk

Chicago Fed President Austan Goolsbee on Sept. 21 rejected the argument that the Federal Reserve should cut interest rates to help the U.S. government lower its debt and deficit financing costs, saying such reasoning underscores why the central bank must remain independent. Speaking to media in London, Goolsbee said the Fed should treat fiscal policy and deficit levels as "background weather," factoring them into decisions only when they affect inflation. He cautioned that pressuring the Fed to push rates down because of growing government debt amounts to "debt monetization," which most economists say can fuel inflation and backfire by raising long-term borrowing costs. President Donald Trump has advocated cutting the policy rate to about 1%, well below the current 3.75%–4.00% range. Long-term Treasury yields have been rising, increasing government financing costs, while the annual U.S. fiscal deficit remains near 6% of GDP.