Fed Official Warns Higher Unemployment May be Price of Slowing Inflation

A top Federal Reserve official warned that fighting inflation may be 'painful' and require raising interest rates to cause economic pain in the form of higher unemployment.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, made these comments during a speech in London. He noted that the Fed is facing persistent supply shocks, including higher oil prices due to the Iran war and tariffs, which have driven up inflation.

Goolsbee stated that typically the central bank would wait for such shocks to fade and inflation to fall on its own. However, faced with ongoing supply shocks, the Fed has little choice but to hike rates to lower consumer and business demand to a level consistent with reduced supply.

He emphasized that 'the only way to bring inflation down is to raise rates and narrow the gap between supply and demand.' Goolsbee added that this would necessarily be painful, forcing inflation back to target in the short run by pushing employment below target.