Goolsbee Warns Inflation Fight May Require Higher Unemployment

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, has warned that fighting inflation may require higher unemployment. In a speech in London, he stated that the Fed is facing persistent supply shocks, including higher oil prices from the Iran war and tariffs, which have driven up inflation.

The central bank typically waits for such shocks to fade before raising interest rates. However, given the ongoing nature of these shocks, Goolsbee believes the Fed has little choice but to hike rates to lower consumer and business demand, thereby reducing supply gaps and bringing inflation back to its 2% target.

Goolsbee's comments contradict those made by Federal Reserve Chairman Kevin Warsh last week. Warsh had stated that raising interest rates would not necessarily harm the labor market in pursuit of low inflation and maximum employment.