Goolsbee Says Strong Demand May Be Fueling US Inflation

Chicago Fed President Austan Goolsbee warned that US inflation may be driven by strong demand, not just supply-side shocks like tariffs and energy prices. This could require a faster pace of Federal Reserve interest rate hikes to bring inflation back in line with the target.

Goolsbee said that rising inflation over the past 18 months was initially seen as stemming from these supply-driven factors, but they are proving persistent. He noted that there is evidence that strong demand is now adding to the problem, particularly in the services sector and with booming investment in artificial intelligence potentially driving prices higher on a broader basis.

Goolsbee emphasized that if demand overheats, there is no ambiguity about how the Fed needs to respond, suggesting that interest rates would need to be raised more aggressively. He also cautioned that supply shocks can have persistent effects, contrary to standard thinking, and that ignoring them could lead to a longer-term inflation problem.