Fed Official Warns of Economic Pain in Fight Against Stubborn Inflation

A top Federal Reserve official warned that fighting inflation may require causing economic pain in the form of higher unemployment.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said in a speech in London that the central bank faces a series of persistent supply shocks driving up inflation, including higher oil prices from the Iran war and tariffs.

Goolsbee noted that the Fed would typically wait for such shocks to fade before raising 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 increases are needed to bring inflation back to the Fed's 2% target, which should narrow the gap between supply and demand.