Fed's Goolsbee Warns Strong Demand Now Drives US Inflation
Chicago Fed President Austan Goolsbee states that overheating demand, not just supply shocks, is pushing prices higher.
Key points
- Austan Goolsbee says strong demand is now a primary driver of US inflation.
- The Fed raised rates by 0.25 percent last week and dropped supply-shock language.
- The PCE Price Index was 3.7 percent in July, far above the 2 percent target.
US inflation is now driven by strong demand, not just tariffs and energy prices. Chicago Fed President Austan Goolsbee said this shift may force faster rate hikes.
Goolsbee spoke to the Official Monetary and Financial Institutions Forum in London. He noted that previous supply-side shocks are proving more persistent than expected.
Demand Overheating Shifts Policy Focus
Central bankers previously expected supply shocks to fade without rate increases. Goolsbee argues that booming AI investment is now raising broader price levels.
He stated that if demand drives inflation, the Fed response must be aggressive. This implies a more front-loaded approach to raising borrowing costs.
Persistent Supply Shocks Defy Forecasts
Forecasters have repeatedly pushed back the date for peak inflation. Goolsbee said this pattern is not comforting and challenges standard economic thinking.
The Fed recently raised its policy rate by a quarter percentage point. Policymakers also removed language attributing inflation solely to supply shocks.
Hard Path to Inflation Target
The Personal Consumption Expenditures Price Index stood at 3.7 percent in July. This figure is well above the Federal Reserve's two percent target.
Goolsbee, who is not a current FOMC voter, called higher rates the only way back. He warned that this path poses risks to growth and jobs.
