Chicago Fed President Evans: Interest rate path depends on Middle East situation, may raise or lower rates

Chicago Fed President Austan Goolsbee said he can foresee the Federal Reserve may need to raise interest rates, or may go back to a path of cutting rates, depending entirely on the evolution of the Middle East war. Goolsbee said in an interview with the media on Monday, "If inflation performs well, we may return to an environment of multiple rate cuts throughout the year." "But I can also foresee another situation, that if the situation develops in a different direction and inflation gets out of control, we will need to raise rates." Despite the uncertainty brought by the Iran war, Fed officials kept rates unchanged last week and continued to signal one rate cut this year. Since the end of the meeting, investors have begun to hurriedly price in higher rates due to inflation concerns in the financial markets. Currently, federal funds futures show that the probability of a rate hike in 2026 is higher than that of a rate cut. Goolsbee pointed out that most economic indicators show that the Fed is "progressing more smoothly towards full employment than towards the inflation target, so currently I believe that inflation factors must be slightly ahead of employment factors in the central bank's considerations." Fed Governor Stephen Milan, a major dove, said the central bank should not base its policy on short-term considerations related to the war in Iran involving the US and Israel. "We should wait until all the information is collected before truly changing our views," Milan said on Monday. "I think it is too early to make a clear judgment on the situation in the next 12 months." Milan admitted that high oil prices could eventually affect other goods and services, but he said his pre-war expectation of four rate cuts this year was still valid.