Fed Official Warns Inflation Fight Will Be Painful, May Require Higher Unemployment

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that fighting inflation will likely be 'painful' and may require higher unemployment. He said the central bank faces a series of persistent supply shocks, including higher oil prices from the Iran war and tariffs, which have driven up inflation.

Goolsbee noted that typically, the Fed would wait for such shocks to fade and inflation to fall on its own rather than raise borrowing costs. However, 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.

The goal is to bring inflation back down to the Fed's 2% target. Goolsbee said, 'The only way to bring inflation down is to raise rates and narrow the gap between supply and demand.'