Image Source: Pixabay
 

In “Lessons from the Fed Minutes: Why Division and Dissension Are Likely to Dominate Monetary Policy in 2026” I made a case for a year full of acrimony on the Fed over monetary policy, a year also tilted toward more rate cuts than current expectations. If Chicago Federal Reserve President Austan Goolsbee’s interpretation of the employment market and the economy hold sway, then the year could deliver fewer rate cuts than I expect. In a CNBC interview, Goolsbee, who dissented from the December rate cut, insists that growth is solid, the labor market is stable, and the demise of the labor market “has been greatly exaggerated”. Moreover, Goolsbee observes that layoffs are low based on unemployment claims. The four-week average for initial claims for unemployment recently dropped to levels last seen in early 2024 (despite the overall uptrend in the unemployment rate).
 

U.S. Employment and Training Administration, 4-Week Moving Average of Initial Claims [IC4WSA], retrieved from FRED, Federal Reserve Bank of St. Louis; U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis

Thus, Goolsbee has “put concerns about the job market aside”. His focus is on inflation.

As President of the Chicago District, Goolsbee is reacting to the observations and concerns of his Midwest constituents across Iowa, Illinois, Indiana, Michigan, and Wisconsin. He cited concerns about costs and affordability. However, the January Beige Book entry for Chicago did not describe any notable levels of concern as follows:

“Prices rose moderately on balance in late November and December and contacts expected a similar pace of growth over the next 12 months. Producer prices rose moderately. Nonlabor input costs rose moderately, with contacts highlighting higher costs for energy (particularly electricity) and raw materials. Manufacturing contacts continued to attribute some increases in raw materials prices to tariffs, while a few construction contacts reported little effect of tariffs on their operating costs. Consumer prices rose moderately, and one retail industry analyst said that to date about half of tariff-related cost increases had been passed through to consumers.”

These “moderate” observations from January are almost identical to the descriptions from the November Beige Book.

The Fed’s contacts in the Chicago district appear to support Goolsbee’s lack of concern for the labor market. They expect a slight increase in employment in the next 12 months. So far, gains in hospitality employment have compensated for further contraction in manufacturing employment. Employers are focused on replacing retirees and citing overall sufficient worker availability. In the CNBC interview, Goolsbee pointed squarely at the uncertainty driven by government policies as the source of employment weakness. The Fed cannot address this kind of uncertainty with lower interest rates; monetary policy acts in an economically cyclical way

The Fed is unable to address non-cyclical issues. Goolsbee suggests as much when he points out that “low hiring and slow firing is not what the business cycle looks like”. Instead, a business cycle features high layoffs along with low hiring.

Goolsbee’s observations and assessments clearly plant him firmly against rate cuts for the foreseeable future.

Conclusion
 

Goolsbee sounds about as entrenched in his position as are the most dovish members of the Fed who believe rate cuts are necessary to support the labor market. Thus, the stage remains set for growing acrimony as monetary policy moves cautiously ahead of the arrival of a new Fed Chair who presumably will be under orders to get rates much lower as a condition for the nomination. The jobs picture as outlined by Goolsbee will make such a dovish push quite difficult to explain.

So while it seems unlikely the Fed will deliver the surprise rate cut this January, I think the overall trajectory of a dovish bias for the Fed keeps expectations solid for an economy running on the hot side with policy combined with a surplus of fiscal stimulus. Thus, I continue to like the commodities portion of my shopping list for 2026.

More By This Author:

Why This Market Feels Both Exciting And Unsettling
Lessons From The Fed Minutes: Why Division And Dissension Are Likely To Dominate Monetary Policy In 2026
A Tired AI Trade Weighs On Market Breadth Breakout