Federal Reserve officials continued to rain down hawkish messages, dousing any lingering hopes of a rate cut in the near term. In separate public appearances on Tuesday, Chicago Fed President Austan Goolsbee and Atlanta Fed President Raphael Bostic flagged inflation as the main guiding factor for monetary policy.
The U.S. Dollar index (DX) futures gained ground Tuesday morning, and traded modestly higher, reversing the losses experienced in the previous two sessions.
Nagging Inflation: Goolsbee, while speaking at the 42nd Annual Economic Policy Conference of the National Association for Business Economics (NABE), said economic growth and the labor market don’t appear to be “especially fragile” but there is a “nagging bit of inflation.”
He, however, hoped that inflation would subside soon, allowing the Fed to get back on the “golden path.” The golden path, a term coined by Goolsbee, refers to a soft-landing scenario in which inflation is brought to the Fed’s 2% target without triggering a recession or causing a significant spike in unemployment.
Goolsbee shrugged off the weak employment number for 2025 as due to the immigration crackdown, which affected population growth and labor supply. “Aggregate job creation at a moment like that is one of the least helpful data series for understanding how much slack there is in the labor market,” he said.
The Fed officials said in such a scenario, rate-based measures such as the vacancy rate, layoff rate and unemployment rate are better indicators of the labor market. Most of these measures have remained fairly steady and at levels comparable to normal expansion.
Goolsbee also said front-loading too many rate cuts may not be prudent when inflation holds firmly above the central bank target for several years now. “Aggregate job creation at a moment like that is one of the least helpful data series for understanding how much slack there is in the labor market,” he said.
Structurally Higher Unemployment Era: Meanwhile, Bostic said in an exclusive Reuters interview that the country may have entered a “a transformational period where employers don't need as many workers as they did before.” This is potentially due to the increase in labor productivity stemming from the deployment of artificial intelligence (AI) tools.
This would push up the jobless rate, which the central bank uses to measure its progress toward achieving one of the dual mandates of full employment.
The Chicago Fed bank president, whose term expires by the end of the month, said, “To address short-run issues that are structural in nature could put us at risk of a much more difficult situation, where both of our mandate measures seem to be moving in the wrong direction.” He, therefore, emphasized that the Fed needs to keep pressing on inflation that remains a full percentage point above the target.
Advantage Dollar? With Federal Reserve officials reinforcing a higher-for-longer stance and pushing back against premature easing, the near-term bias for the U.S. dollar remains constructive. Sticky inflation and caution against front-loaded rate cuts suggest policy divergence could persist, especially if other major central banks turn more dovish.
Traders may look for opportunities to position for continued upside in the U.S. Dollar Index futures, buying dips, particularly if incoming inflation data surprises to the upside or labor-market indicators remain resilient. A sustained hawkish tone could keep yields supported and underpin the dollar in the sessions ahead.
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