By Ann Saphir

The U.S. central bank is on track to bring down inflation without triggering a major recession, Chicago Federal Reserve Bank President Austan Goolsbee said on Tuesday, though whether it will be able to do so without another interest-rate hike will depend on the data.

"I'm kind of, I'm closet optimistic ... my forecast is that we manage this, that we walk the fine line of the path that we get inflation down, not immediately but at a reasonable pace without a big, a huge increase, in unemployment," Goolsbee told Reuters on Tuesday. "Hopefully we're going to continue to see improvement on the inflation front; I kind of think that's the key driver of our thinking and decision-making coming out of the last meeting, but also going into the next one."

Goolsbee last week joined fellow U.S. central bankers in a unanimous decision to raise the Fed's policy rate a quarter of a percentage point, to a target range of 5.25%-5.50%, after skipping a hike at the previous meeting for the first time since it began its rate-hike campaign in March 2022.

In June, Fed policymakers signaled they expect to need to lift rates further, to above 5.5%, before year's end. On Tuesday, Goolsbee said his own decision at the Fed's next meeting in September will be driven by what happens on prices.

"Many of these recent meetings have been... close calls, I'd say," Goolsbee said. "We are trying to manage the transition point, and that's always the hardest thing, when you are trying to get the timing right."

Inflation by the Fed's preferred measure, the personal consumption expenditures index, has more than halved from last summer's peak to 3% in the most recent month, though Goolsbee said he needs to see "sustained, steady" progress toward the Fed's 2% goal.

The progress has not come at much obvious cost to the labor market: the U.S. unemployment rate is currently at the same low 3.6% that it was when the Fed began raising interest rates in March 2022.

And those metrics suggest, Goolsbee said, that the Fed is on the "golden path" of disinflation without a recession. "So far so good; it's a tight line to walk," he said.

A report from the Labor Department on Tuesday showed job openings fell in June to the lowest level in two years, but layoffs and discharges declined for a third straight month as employers hung on to workers after labor shortages during the COVID-19 pandemic.

"That is consistent with what we're hearing from business contacts at the Fed -- what we're seeing in the other labor market data -- which is, it is still a very strong market, but it's cooling to a more balanced place," Goolsbee said.

But, he added, he does not see a tight connection between labor market tightness and inflation - meaning, he believes that inflation can fade even as the job market stays healthy.

Banks are pulling back on credit in a "normal" and expected response to a higher Fed policy rate, he said, and he no longer fears a severe credit crunch as he did in the immediate aftermath of the regional bank failures in March.

And goods inflation - to Goolsbee, the key driver of overall prices -- is coming down and in fact, by one broad measure of online prices, has reentered its pre-pandemic deflationary trend, he said.

Such progress notwithstanding, inflation is too high and the Fed must bring it down: "there should be no doubt" that it will, he said.

The Fed's September rate call will depend on what happens with inflation, as will how long the Fed will keep rates high and when it will start cutting, he said.

"The answer is, it totally depends on whether we're able to navigate the path and get inflation down without a recession," he said.

(Reporting by Ann Saphir; Editing by Andrea Ricci)