Fed Official Warns Painful Rate Hikes Ahead to Combat Stubborn Inflation

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that fighting high inflation may require causing economic pain in the form of higher unemployment.

Goolsbee stated that the Fed is facing a series of persistent supply shocks, including higher oil prices from the Iran war and tariffs, which have driven up inflation. Typically, the central bank would wait for such shocks to fade and inflation to fall on its own, but with ongoing supply shocks, Goolsbee said the Fed has little choice but to hike rates.

The increases in interest rates are necessary to lower consumer and business demand to a level consistent with reduced supply, which should bring inflation back down to the 2% target. However, this may involve pushing employment below its target rate.