Chicago Federal Reserve President Austan Goolsbee has expressed ongoing concerns about inflation, particularly within the services sector, suggesting it could signal an overheating economy. While acknowledging that the recent three-month inflation trend "doesn't look terrible," Goolsbee emphasized that he remains more focused on the inflation side of the Fed's mandate than on employment, contrasting with market expectations for rate cuts and Chairman Kevin Warsh's perceived focus on labor market risks.
Goolsbee's apprehension stems from what he described as "stubborn and sticky" inflation, with a particular focus on the non-energy components, like services, as potential indicators of underlying economic overheating. He stressed the difficulty of reversing a renewed inflationary impulse once it takes hold, leading him to believe that "everybody should be on edge." This sentiment was echoed in his remarks about elevated energy prices from the Iran conflict and shifting tariffs adding pressure to household budgets already struggling with affordability.
Despite the July PCE data showing headline inflation at 3.7% year-on-year and core inflation at 3.3% (both unchanged from June), Goolsbee cautioned against political interference with the Fed, warning that such actions typically lead to inflation. He also noted that if inflation continues its path back towards the 2% target, the Fed's policy rate could eventually be lowered. However, he advised interest-rate-sensitive industries to "watch the data" rather than market speculation regarding future monetary policy.
