Fed Official Warns Higher Unemployment May Be Required to Tame Inflation

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that fighting high inflation may require painful measures, including higher unemployment. Speaking in London, Goolsbee said that the Fed is facing persistent supply shocks, such as higher oil prices due to the Iran war and tariffs, which have driven up inflation.

Typically, the central bank would wait for these 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 to lower consumer and business demand to a level consistent with reduced supply.

Goolsbee said 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 require pushing employment below target in the short run, which would be 'painful.'