Fed Warns Inflation Fight May Come at Labor Market Cost

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, warned that fighting inflation will be painful and may require higher unemployment. Speaking in London, he stated that continuous supply disruptions, including tariffs and rising oil prices stemming from the Iran war, have pushed inflation higher.

Goolsbee noted that typically, the central bank would wait for these temporary shocks to clear naturally instead of raising interest rates. However, faced with repeated supply shocks, he said the Fed has little option left except to raise rates.

The rate increases are intended to cool business and consumer demand to match diminished supply, ultimately bringing inflation back to the 2% target, according to Goolsbee. He wrote in prepared remarks that 'the only way to bring inflation down is to raise rates and narrow the gap between supply and demand.'