Fed Official Warns Higher Unemployment May Be Necessary to Combat Inflation

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

In a speech in London, Goolsbee stated that the Fed is facing persistent supply shocks, including higher oil prices from the Iran war and tariffs, which have driven up inflation.

Goolsbee noted that typically, the central bank would wait for such shocks to fade and inflation to fall on its own rather than raise borrowing costs. However, faced with ongoing supply shocks, the Fed now has little choice but to hike rates.

The increases are needed to lower consumer and business demand to a level consistent with reduced supply, which should bring inflation back to the Fed's 2% target, according to Goolsbee.