Federal Reserve Bank of Chicago President Austan Goolsbee emphasized on Friday that the Fed's strategy should be driven by longer-term trends rather than short-term market noise. According to Goolsbee, markets have a tendency to overreact to rate adjustments, which is why the Fed should prioritize a steady, gradual path toward the neutral rate, avoiding any hasty moves that could destabilize the economic outlook. Key Takeaways: Fed’s Calculated Approach December Decision Unclear: The Fed is holding off on a rate cut or pause until more data comes in, avoiding any premature commitments. Slow & Steady Wins the Race: While markets react impulsively, the Fed is focused on long-term trends, not short-term swings. Gradual Cuts on the Horizon: Any future rate cuts will likely follow September’s projections, but the Fed aims to approach the neutral rate cautiously, rather than rushing in. Inflation Still in the Spotlight: Continued progress on inflation is critical. If recent gains reverse, it might signal deeper issues. Current levels are slightly above target, which could spell trouble if prolonged. Navigating Volatile Data: With inflation numbers swinging unpredictably, the Fed is careful not to jump to conclusions. The neutral rate is seen as much lower than today’s rates, leaving room for gradual tweaks. The Productivity Puzzle: While strong GDP growth can indicate overheating, high productivity growth may skew the picture—caution is key. Diverging Views Within: Disagreement among Fed members on the true neutral rate could justify a more measured pace in reducing rates.