Fed's Inflation Target Faces Supply Shock Challenges

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, has warned that achieving the central bank's inflation target of 2% may not be a straightforward process. He pointed out that supply shocks have become more frequent and severe, making it difficult for the Fed to ignore them.

Goolsbee emphasized that when supply shocks to inflation persist, the logic behind 'looking through' them no longer applies. This means that the central bank must respond in a way that may cause economic hardship, at least in the short term.

The increase in frequency and severity of supply shocks is a concern for Goolsbee, who stated that they have 'hit harder and lasted longer'. He acknowledged that the Fed's inflation-targeting framework may need to be adjusted to account for these changes.