Fed Official: Fighting Inflation May Require Higher Unemployment

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that fighting stubbornly high inflation may require causing economic pain in the form of higher unemployment.

Goolsbee said that the Fed is facing persistent supply shocks, including higher oil prices and tariffs, which have driven up inflation. Typically, the central bank would wait for such shocks to fade and inflation to fall on its own, but with ongoing supply issues, the Fed must hike rates to lower demand and bring inflation back in line.

Goolsbee emphasized 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, which could lead to higher unemployment. 'It's going to be painful,' Goolsbee said.