Fed’s Goolsbee warns of sharper rate rises as inflation broadens

Inflation has spread to categories “where prices are not being driven by energy,” according to Chicago Federal Reserve (Fed) President Austan Goolsbee, who said the Fed “definitely has work to do” to preserve its credibility.

Speaking to CNBC on Friday, Goolsbee said: “Inflation is rising and proving far more persistent than expected when it was just a matter of supply shocks.” He indicated that “to the extent data” point to worsening inflation, the Fed would be pushed towards a more aggressive stance on interest rates.

Goolsbee Highlights Persistent Inflation Pressures:

Speaking on CNBC, says inflation has extended to categories in which energy is not driving prices

Caution is needed when judging the labour market’s effect on inflation, as wages lag behind price pressures

An overheating demand backdrop means inflation cannot be looked through; the expansion of data centres is lifting prices

Compared with expectations when supply shocks alone were the issue, inflation is climbing and proving much more persistent

To preserve its credibility, the Fed “Definitely has work to do”

Neither services inflation nor increasing healthcare costs appear likely to change swiftly

Like Bessent, the Fed is seeking to establish how persistent inflation will be

Refining capacity remains “Problematic” even if oil prices fall sharply, keeping diesel and jet fuel prices high

Evidence in the data of worsening inflation would prompt a more aggressive response from the Fed

With the Fed currently off course to reach 2%, the central bank must address the situation and ensure demand does not overheat