Federal Reserve officials decided to pause interest rates at their current level last week. Investors are becoming increasingly curious about when the Fed will turn to cutting rates in 2024. In an exclusive interview with Yahoo Finance's Jennifer Schonberger, Federal Reserve Bank of Chicago President Austan Goolsbee believes three rate cuts this year are still "in line with [his] thinking."

In the wake of 2024's inflation prints, Goolsbee characterizes the Fed's pathway to lowering inflation to its 2% goal as "a bit of a murky period" and in an "uncertain state" while striking a balance with the US labor market:

"If you look at the real federal funds rate — that is, the rate minus the inflation rate — as inflation has come down, it means that we're in a historically pretty restrictive territory, and it gets more restrictive as we hold the rates steady and inflation comes down. The real restrictiveness goes up. So I think with that level of restrictiveness, you will have to start paying attention to the other side of the mandate, too, if it goes for too long."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JENNIFER SCHONBERGER: Joining me now in an exclusive interview is Chicago Fed President Austan Goolsbee. Austin, thanks so much for joining me. Welcome back to the program. It's great to see you.

AUSTAN GOOLSBEE: Hi, Jennifer, thank you for having me.

JENNIFER SCHONBERGER: Last week, Fed Chair Powell said during his press conference that despite hotter inflation data in the first couple of months of this year, he didn't feel that the overall picture for inflation has changed all that much. Do you share that view?

AUSTAN GOOLSBEE: I think I share that view. I think the big CPI and PCE inflation readings of January remained higher than we wanted them to be and higher than expected in February, but they did come down. We-- they follow on seven straight months of really quite good CPI and PCE readings, so we're in a little bit of a murky period.

The overall-- it seems hard for me to view that the seven months previous to the start of this year were just random. So, we're in an uncertain state, but it doesn't feel to me like we've changed fundamentally the story that we're getting back to target.

JENNIFER SCHONBERGER: Setting aside for a second because that's been running hotter than the Fed's preferred inflation gauge of core PCE. Core PCE sits at 2.8% as of January, and it's been falling by a tenth of a percent every month. We'll get a new reading on that metric this Friday, but do you expect that trend could continue at that pace?

AUSTAN GOOLSBEE: Well, it better, and let's hope we even start speeding up the improvement-- we have to. I mean 2.8% is well above our target, as you know. We're going to get to 2%. We've always known it's going to take place over time. We're-- as I say, we're in this murky period where we've got to strike a balance of the dual mandate. The law gives us the dual job of getting prices stabilized and maximizing employment.

We've been in a restrictive environment, I think. If you look at the real federal funds rate-- that is the rate minus the inflation rate. As inflation has come down, it means that we're in a historically pretty restrictive territory, and it gets more restrictive. As we hold the rates steady and inflation comes down, the real restrictiveness goes up. So, I think with that level of restrictiveness, you will have to start paying attention to the other side of the mandate too if it goes for too long. And you saw Chair Powell discuss the employment side of the mandate at the press conference as well.