Chicago Fed Pres. Goolsbee: We Have Credit Conditions that ‘Have Been Correlated with Recessions’

On Friday’s broadcast of the Fox News Channel’s “Your World,” Chicago Federal Reserve Bank President Austan Goolsbee stated that current credit conditions “have been correlated with recessions” in the past.

Goolsbee said that “credit conditions like the ones we’re seeing now, in the past, have been correlated with recessions, credit crunches kind of have done the tightening work of monetary policy.”

He added, “[I]t’s way too premature to know what to do with monetary policy, especially because we’re up, we’re down on this credit, the issue of how our credit condition’s going to be and what’s going to be the fate of our regional banks in the immediate term, those are going to matter a lot.”

Goolsbee further stated, “I gave a speech before this last FOMC meeting where I said, even if you don’t think that we should use the interest rate as a way to fight off financial crisis — which I don’t think you should, I think you should use your prudential and regulatory tools to do it — things like that, even if they don’t spiral into a crisis, they are correlated with banks raising their lending standards as they’re trying to raise more capital. There’s just going to be less to go around for business expansion. And that’s likely to slow the economy. And for sure, you should think — take that into account. And so, that’s what we’ve all got to keep an eye on, that part of credit conditions, because, as I view it, that’s kind of doing the work of monetary policy. If you feel like the economy’s still very hot, the unemployment rate is 3.4%, whatever tightening that you’re going to need to do has got to be taking into account…what the banking system’s impact [is].”

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