Chicago Fed President Goolsbee rejects calls for Fed rate cuts to ease US debt burden

Chicago Fed President Austan Goolsbee said on Monday that calls for the Federal Reserve to cut interest rates to ease the government’s debt burden underscore the need for central-bank independence, Reuters reported.

Speaking in London, Goolsbee said fiscal policy and deficits should remain “background weather” for the Fed and matter only when they affect inflation.

"Should the Fed try to reduce the rates to make the deficit smaller or to make it less costly to increase the debt?" Goolsbee asked. "Let's be a little careful with that. ... Because I think that is the canonical argument" for central bank independence.


Goolsbee described efforts to push interest rates lower as government debt rises as a “monetise the debt” argument. Economists warn such a move could fuel inflation and backfire by raising market borrowing costs as inflation expectations rise.

President Donald Trump has urged the Fed to cut its policy rate to around 1%, well below the current 3.75–4% range. Meanwhile, rising long-term Treasury yields are increasing the cost of financing annual deficits equivalent to about 6% of US economic output.

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(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)