Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said in a CNBC interview on Tuesday that services inflation is “not tame”. He also said there are potentially several more rate cuts in 2026.
He said recent headline inflation was partly pulled down due to base effects. He added that goods with higher tariffed content have tended to see larger price increases.
Policy Rate Outlook
Goolsbee said a 3% policy rate is a “loose” estimate of neutral. He said he wants evidence that inflation is moving back to 2% before rates keep coming down.
He said he has known chair nominee Warsh for a long time. He added he is a “big fan” of Warsh from working together during the Great Financial Crisis.
We see the Fed signaling a desire for more rate cuts this year, but the warning about not tame services inflation is the key takeaway. The latest January 2026 CPI report confirmed this, with core services inflation remaining sticky at 4.1% year over year. This means the path to the several cuts mentioned is entirely dependent on seeing this number fall significantly.
This puts a huge focus on the next inflation report for interest rate derivative plays. Traders might consider buying options on 3 Month SOFR futures to position for a large move without picking a firm direction. A cooler than expected inflation print would cause a rally in these futures as the market prices in the cuts Goolsbee hinted at.
Market Volatility Signals
In the equity markets, this signals potential for increased volatility around upcoming data releases. With the VIX index currently sitting at a relatively low 14, buying VIX calls ahead of the next CPI or employment report could be a prudent hedge. Any surprise in the data could easily cause a market swing and a spike in volatility.
We must remember the market’s experience back in 2025, when the Fed started a cutting cycle only to pause after inflation ticked back up in the third quarter. That head fake showed us how quickly the policy outlook can shift. This history suggests that long term dovish bets are risky until we see a consistent downward trend in the data.
For currency traders, this creates a tricky environment for the US dollar. While the prospect of several more cuts is a headwind for the dollar, the sticky inflation data provides underlying support. This could lead to range bound trading in major pairs like EUR USD until the Fed’s path becomes clearer.
