Fed Official Warns of Economic Pain in Inflation Fight

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that fighting inflation may come at a significant cost to the economy. In a speech in London, he stated that the central bank may need to cause economic pain by raising interest rates to combat stubbornly high inflation.

Goolsbee cited persistent supply shocks, including higher oil prices from the Iran war and tariffs, as drivers of inflation. He noted that typically, the Fed would wait for such shocks to fade before acting, but with ongoing supply disruptions, rate hikes are necessary to lower demand and bring inflation back in line with the 2% target.

The increases will necessarily be painful, Goolsbee said, as they push employment below target. He added that the Fed may need to implement more than one additional rate hike later this year, contrary to policymakers' forecasts last week.