Federal Reserve Bank of Chicago President Austan Goolsbee has warned that the latest US inflation figures are discouraging, while reaffirming that the Federal Reserve remains committed to returning inflation to its 2% target. His comments followed September’s stronger-than-expected Consumer Price Index (CPI) report, which raised fresh questions about how quickly price pressures can ease.
In an interview with Yahoo Finance on October 14, Goolsbee highlighted persistent inflation in services and goods, suggesting the latest increase may reflect more than temporary shocks from energy prices or tariffs. He said the Fed needs a clearer picture of the underlying trend before determining whether current interest rates are sufficient.
Services inflation raises concern
US consumer prices rose 3.7% year over year in September, compared with 3.4% in August. Monthly CPI increased 0.6%. Core CPI, which excludes food and energy, rose 2.6% annually and 0.3% month over month.
Goolsbee said services inflation showed little sign of improvement, with the relevant measure running above 5%. Unlike gasoline prices, which can move sharply because of energy-market disruptions, services inflation can reflect broader domestic demand and persistent cost pressures.
He also expressed concern that goods inflation remained elevated. If price increases linked to tariffs prove more persistent than expected, the Fed could face a longer period of above-target inflation.
Rate hikes remain possible
Goolsbee stopped short of calling for an immediate rate increase, saying the Fed still needs more evidence to establish the underlying inflation trend. He has cautioned against cutting rates too early on the assumption that inflation will quickly fade.
The Fed’s policy rate was raised by a quarter percentage point in September to a target range of 3.75%–4%. Officials had also projected another increase by the end of 2026, although the latest data could prompt investors to reassess the timing of future decisions.
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The distinction is important for financial markets. If inflation remains elevated, Treasury yields and the US dollar could receive support as expectations for easier monetary policy weaken. Equities, property companies and other interest-rate-sensitive assets could face pressure from higher financing costs.
The risk of persistent inflation
Goolsbee’s central concern is that inflation could become increasingly driven by strong domestic demand rather than temporary supply shocks. He pointed to economic activity in the Midwest, where businesses and households continue to report high costs without widespread signs of an approaching downturn.
He also highlighted the scale of investment in artificial intelligence infrastructure as an area to watch. Strong investment can support economic growth, but if demand expands faster than the economy’s capacity to supply goods and services, it may contribute to persistent price pressure.
For the Fed, the challenge is to reduce inflation without unnecessarily damaging employment or growth. The next inflation readings and labour-market data will help determine whether current policy is sufficiently restrictive or whether further tightening may be needed.
Goolsbee remains confident that inflation can return to the Fed’s 2% target, but his latest remarks make clear that the path may be slower and more difficult than policymakers previously expected.
