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 could be several more rate cuts in 2026.
He said the recent drop in headline inflation was partly due to base effects. He also said goods with higher tariff content have generally seen bigger price increases.
Policy Rate Outlook
Goolsbee said a 3% policy rate is a “loose” estimate of neutral. He said he wants to see clear evidence that inflation is moving back to 2% before rates continue to fall.
He said he has known chair nominee Warsh for a long time. He added that he is a “big fan” of Warsh, based on their work together during the Great Financial Crisis.
We think the Fed is signaling it wants more rate cuts this year. But the key message is the warning that services inflation is still not tame. The latest January 2026 CPI report backed this up, with core services inflation still high at 4.1% year over year. This means any path to the “several cuts” he mentioned depends on that number falling a lot.
This puts major focus on the next inflation report for interest rate derivative trades. Traders may consider buying options on 3 Month SOFR futures to prepare for a large move without choosing a clear direction. If inflation comes in cooler than expected, these futures could rally as markets price in the cuts Goolsbee hinted at.
Market Volatility Signals
In equity markets, this points to a higher chance of volatility around upcoming data releases. With the VIX index currently near a low 14, buying VIX calls ahead of the next CPI or employment report could be a sensible hedge. A surprise in the data could quickly move markets and push volatility higher.
It is also worth remembering what happened in 2025, when the Fed began cutting rates but then paused after inflation rose again in the third quarter. That false start showed how fast the policy outlook can change. This history suggests long-term dovish bets are risky until the data shows a steady downward trend.
For currency traders, this creates a difficult setup for the US dollar. The chance of several more cuts is negative for the dollar, but sticky inflation offers some support. This could keep major pairs like EUR USD trading in a range until the Fed’s path is clearer.
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