When Chicago Fed President Austan Goolsbee told CNBC on Tuesday that “several more” rate cuts could come this year — provided inflation resumes its march toward 2% — markets heard both reassurance and restraint. His words did not signal a policy shift. But they clarified a critical point about where the Fed stands right now: easing is on the table, not off it. The question is entirely about timing, sequencing, and proof.
Goolsbee was specific. He described a fed funds rate of around 3% as a “loose target” for the neutral rate — the theoretical level at which monetary policy neither stimulates nor restricts the economy. With the current target range sitting at 3.5% to 3.75%, reaching that destination would require roughly two to three quarter-point cuts. That is not a dramatic recalibration. But it represents meaningful distance from the December median projection, in which the central bank’s 19 policymakers penciled in just a single additional cut for 2026, though eight of them saw at least two.
The crucial word in Goolsbee’s framing is “if.” He acknowledged that inflation has been “basically stalled out around 3% with some positive signs, but also some warning signs.” Services inflation, at a 3.2% annual rate in January, remains what he called “not tamed.” And while the headline consumer price index for January came in at a cooler-than-expected 2.4% year-over-year — the lowest reading since May 2025 — Goolsbee partly discounted the result, noting that favorable base effects from elevated readings a year ago were doing much of the work.
That skepticism matters. The January CPI print, released on February 13, superficially told an encouraging story. Core CPI fell to 2.5% annually, its lowest since March 2021, and shelter costs — which make up more than a third of the index — rose just 0.2% for the month. Energy prices declined 1.5%. But beneath the headline, the monthly core reading actually accelerated to 0.3%, a five-month high. And economists at Oxford Economics and elsewhere cautioned that data disruptions from last fall’s 43-day government shutdown may be creating a temporary downward bias in inflation readings that will not fully wash out until spring.
This is the awkward position the Fed finds itself in. The topline numbers invite optimism. The details counsel patience.
The AI Wrinkle
On the same day Goolsbee spoke, two other Fed officials weighed in on a different dimension of the rate debate — one that has grown louder since President Trump nominated Kevin Warsh as the next Fed chair.
Warsh, whose confirmation remains pending and whose term would begin after Jerome Powell’s departure in May, has argued that artificial intelligence is ushering in “the most productivity-enhancing wave of our lifetimes.” His logic echoes the Greenspan-era argument: if technology is making the economy structurally more productive, growth can run hotter without triggering inflation, and rates can be set lower.
Fed Governor Michael Barr, speaking at the New York Association for Business Economics, pushed back firmly. He stated that AI-driven productivity alone is “unlikely to be a reason for lowering policy rates.” Barr’s reasoning was layered. Higher productivity, he argued, could increase demand for capital investment, push down the savings rate as households anticipate higher lifetime earnings, and ultimately raise the neutral rate — meaning the economy can tolerate higher, not lower, borrowing costs. He also flagged the possibility of a “jobless boom,” in which rapid AI adoption displaces workers before new roles emerge. Monetary policy, he emphasized, cannot fix structural labor market dislocations.
San Francisco Fed President Mary Daly, addressing the Silicon Valley Leadership Group at San Jose State University, offered a complementary caution. She noted that “most macro-studies of productivity growth find limited evidence of a significant AI effect” so far. The gains may simply not have materialized yet at an economy-wide level — or, as she put it, “it could also be that we are simply not there yet.” Daly invoked Alan Greenspan’s approach to the 1990s technology boom, arguing that his real innovation was not looking at more data but at the right data. The implication: the Fed needs to develop better measurement tools before drawing policy conclusions from AI hype.
This three-way tension — Warsh’s technological optimism, Barr’s structural skepticism, and Daly’s methodological caution — will become the defining intellectual fault line of the Fed’s 2026 deliberations, particularly once Warsh takes the chair.
What Markets Are Pricing
The bond market moved before Goolsbee spoke. After the January CPI release on February 13, the 10-year Treasury yield fell to 4.04%, its lowest since November, while the 2-year yield dropped to 3.40%, a level not seen since 2022. Fed funds futures traders increased their expectations for total easing this year to approximately 61 basis points, up from 58 basis points before the data.
The market’s baseline now centers on two 25-basis-point cuts, with the first most likely arriving in June and the second in September. The March 17–18 FOMC meeting is widely expected to produce a hold, but will also deliver updated economic projections — the so-called dot plot — that should reveal whether the committee’s internal distribution of rate views has shifted since December.
One nuance worth noting: Goolsbee is not a voting member of the FOMC in 2026. His remarks carry communicative weight — he is signaling where he believes the consensus should move — but they do not directly influence the outcome. Among actual voters, the range of views remains wide. Barr’s call to “hold rates steady for some time” and see “evidence that goods price inflation is sustainably retreating” stands at the hawkish end. The incoming chair’s productivity optimism sits at the other.
The Broader Context
The rate debate is unfolding against a backdrop of unusual cross-currents. The U.S. economy grew at a 3.7% annualized pace in Q4, according to the Atlanta Fed’s GDPNow tracker. January payrolls added 130,000 jobs, beating expectations, and the unemployment rate edged down to 4.3%. These are not recession signals. They are the numbers of an economy that does not urgently need rate relief.
Yet other signals flash differently. Job creation averaged only about 15,000 per month in 2025. Consumer spending was unexpectedly flat heading into the holiday season. And the impact of tariffs, while largely contained to specific goods categories like furniture and appliances, continues to add uncertainty to the price outlook. The Fed’s preferred inflation gauge — the personal consumption expenditures (PCE) index — remains near 3%, well above target.
Globally, the Fed’s positioning matters beyond U.S. borders. If the Fed signals a credible path to further easing, it creates space for emerging market central banks facing capital outflow pressures. It also widens the potential policy divergence with the European Central Bank and Bank of England, which are navigating their own inflation legacies and growth challenges. A weaker dollar trajectory would benefit commodity exporters; a stronger one would tighten financial conditions in dollar-denominated debt markets across Asia and Latin America.
What to Watch
The March FOMC meeting will be the next inflection point — not because a cut is likely, but because the updated dot plot and projections will show whether the January data has shifted internal expectations. Beyond that, the transition to a Warsh-led Fed in May introduces a philosophical wildcard. The question is whether Warsh can build consensus around his productivity thesis among a committee where several members remain visibly unconvinced.
Goolsbee’s “several” is a number dressed in conditionality. It tells us the Fed sees a plausible path to meaningful easing this year. It also tells us that path runs through months of data that have not yet arrived — and through an internal debate about technology, inflation, and credibility that is only beginning.
Sources:
- Reuters — “Fed’s Goolsbee: ‘Several’ rate cuts possible this year if inflation gets on track to 2%” (February 17, 2026)
- Bloomberg — “Fed Officials Say AI Productivity Boost Could Raise Neutral Rate” (February 17, 2026)
- Yahoo Finance / Reuters — “Fed must dig deep on AI impact to make right rate calls ahead, Daly says” (February 17, 2026)
- CNN — “Warsh says AI could help the Fed lower interest rates. Disagreements are already brewing” (February 17, 2026)
- CNBC — “CPI inflation report January 2026” (February 13, 2026)
- Barron’s / MarketScreener — “Fed’s Barr Wants Proof Goods Inflation Is Retreating Before Additional Rate Cuts” (February 17, 2026)
