Federal Reserve officials unanimously admit fault: response to pandemic inflation was too slow, so why are they now fiercely guarding independence

The recent remarks by Chicago Fed President Goolsbee hit the Fed’s “pain point.” He openly admitted that the Federal Reserve’s response to inflation during the pandemic was too slow. This is not only a policy reflection but also highlights the new dilemma the Fed faces: having to acknowledge past mistakes while defending policy independence under political pressure. Meanwhile, Fed officials collectively sent a clear signal — there will be no rate cuts in January, and policy needs to remain restrictive.

Lessons from the Past: Why Response Was Too Slow

Goolsbee’s acknowledgment is essentially a public reflection on the Fed’s policy judgments during 2021-2023. At that time, the Fed characterized high inflation as “transitory,” which led to maintaining an accommodative stance despite persistent inflation, only beginning aggressive rate hikes in 2022.

According to the latest data, the US December core CPI rose 2.6% year-over-year, and the overall CPI reached 2.7%, both above the Fed’s 2% target. This indicates that inflation has eased but is still not fully under control. Goolsbee’s candor, to some extent, is paying the price for this “overly loose” period in policy.

Current Stance: Why the Hardening Suddenly

Interestingly, while admitting past delays, Goolsbee and other Fed officials are now showing unusually firm resolve on current policy. Several reasons underpin this:

Economic Data Support

• The US economy remains resilient, with December existing home sales the strongest since 2023
• The labor market remains broadly stable
• This means there is no urgent need to cut rates

Inflation Target Not Achieved

• Core CPI remains at 2.6%, still above the 2% target
• Maintaining restrictive rates remains necessary

Challenges to Political Independence

This is the most critical factor. The US Department of Justice recently issued a subpoena to the Fed for testimony regarding the headquarters renovation project. This has been widely interpreted by Fed officials as political pressure.

Against this backdrop, Fed officials have collectively defended the central bank’s independence. Kashkari explicitly stated that the investigation “essentially concerns monetary policy,” serving as an excuse to pressure rates. Goolsbee, Bostic, and Williams also emphasized that Fed independence is vital for maintaining long-term inflation stability.

Overview of Officials’ Positions

Notably, Fed Governor Mester has taken a different stance, believing inflation is “on the right track,” and even hinting at a possible 1.5 percentage point rate cut within the year. But this view is clearly in the minority.

Market Expectations and Future Outlook

The Fed’s three consecutive rate cuts in 2025, totaling 75 basis points, have fueled market expectations for 2026. Wall Street institutions are even betting on an unexpected rate cut in January. However, based on the collective statements from current officials, this expectation seems unlikely to materialize.

Market consensus suggests the Fed may not restart rate cuts until after June at the earliest. This implies:

• The January FOMC meeting will most likely keep rates unchanged
• Policy will remain restrictive in the near term
• The game between political pressure and policy independence will continue
• June could become the next policy window

Summary

Goolsbee’s admission reflects a period of self-reflection on past policies, but maintaining current stance is equally important. The reason Fed officials are collectively hardening is not only to complete the “last mile” of inflation control but also to defend the central bank’s independence.

When political pressure conflicts with policy independence, the Fed chooses to stand firm. Whether this attitude can be sustained depends on inflation data, economic performance, and political developments. But at least for now, the timetable for rate cuts has been significantly pushed back, and markets should prepare for a longer-term high-interest-rate environment.