Broadening inflation: Fed’s Goolsbee warns of more aggressive rate hikes

Inflation is spreading beyond energy-driven categories, according to Chicago Federal Reserve (Fed) President Austan Goolsbee. Price pressures now extend to areas “where prices are not being driven by energy,” he said, warning that 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 worsening inflation, “to the extent data” point to it, would push the Fed towards a more aggressive stance on rates.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Main Points:

Speaking on CNBC, says price pressures have extended to categories not driven by energy costs

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

An overheating demand backdrop prevents the Fed from looking through inflation; data centre construction is lifting prices

Inflation continues to climb and is proving much more persistent than anticipated when supply shocks alone were the issue

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

A rapid shift in services inflation and rising healthcare costs does not appear likely

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

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

Evidence of worsening inflation would prompt a more aggressive Fed response

2% is not currently within reach on the Fed’s inflation path; the central bank must address this and ensure demand does not overheat

0.35% Against CHF: US Dollar Performance Today

The US Dollar’s strongest performance today was against the Swiss Franc. The table below sets out today’s percentage moves in the US Dollar (USD) against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.08%	0.07%	0.02%	-0.06%	0.26%	0.25%	0.35%
EUR	-0.08%		-0.01%	-0.04%	-0.14%	0.18%	0.17%	0.27%
GBP	-0.07%	0.00%		-0.04%	-0.13%	0.19%	0.18%	0.28%
JPY	-0.02%	0.04%	0.04%		-0.09%	0.23%	0.21%	0.32%
CAD	0.06%	0.14%	0.13%	0.09%		0.32%	0.31%	0.41%
AUD	-0.26%	-0.18%	-0.19%	-0.23%	-0.32%		-0.01%	0.09%
NZD	-0.25%	-0.17%	-0.18%	-0.21%	-0.31%	0.00%		0.11%
CHF	-0.35%	-0.27%	-0.28%	-0.32%	-0.41%	-0.09%	-0.11%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the US Dollar on the left and reading across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

Federal Reserve: Key Questions

The Federal Reserve’s role and its effect on the US Dollar

The Federal Reserve (Fed) sets US monetary policy with two objectives: stable prices and full employment. Interest rate adjustments are its main means of pursuing these goals. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases rates. Borrowing becomes more expensive across the economy, while higher rates attract international investors to US assets, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may lead the Fed to cut rates to stimulate borrowing. This puts downward pressure on the US currency.

Eight Meetings a Year: The Fed’s Policy Schedule

At eight policy meetings each year, the Federal Open Market Committee (FOMC) reviews economic conditions and decides monetary policy for the Federal Reserve (Fed). Twelve Fed officials participate: all seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and four of the other eleven regional Reserve Bank presidents. Those four seats rotate, with each president serving a one-year term.

Quantitative Easing (QE): How It Affects USD

To restore credit flows in a stalled financial system, the Federal Reserve may turn to Quantitative Easing (QE) in extreme circumstances. This policy substantially expands the supply of credit. Used during crises or periods of extremely low inflation, QE is an unconventional measure. The Fed chose it as its principal response during the Great Financial Crisis in 2008. Under QE, the central bank prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

Quantitative Tightening (QT): Implications for the US Dollar

In contrast to QE, quantitative tightening (QT) means the Federal Reserve halts bond purchases from financial institutions. It also refrains from reinvesting the principal repaid on maturing bond holdings in new bonds. The process generally supports the US Dollar’s value.