Fed Official: Fighting Inflation May Require Economic Pain

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that fighting inflation may require causing economic pain in the form of higher unemployment. Speaking in London, Goolsbee said the Fed is facing persistent supply shocks, including higher oil prices due to the Iran war and tariffs, which are driving up inflation.

The central bank typically waits for such shocks to fade before raising borrowing costs, but with an ongoing series of supply shocks, it has little choice but to hike rates. Goolsbee said the increases are necessary to lower consumer and business demand to a level consistent with reduced supply, which should bring inflation back to the Fed's 2% target.

In his remarks, Goolsbee stated that 'the only way to bring inflation down is to raise rates and narrow the gap between supply and demand.' He acknowledged that this would mean pushing employment below target in the short run. 'It's going to be painful,' he said. 'It would necessarily be painful.'