Goolsbee Warns Inflation Fight May Require Higher Unemployment

A top Federal Reserve official, Austan Goolsbee, warned that fighting inflation may require causing economic pain in the form of higher unemployment. In a speech in London, Goolsbee said the central bank is facing persistent supply shocks, including higher oil prices from the Iran war and tariffs, which are driving up inflation.

Goolsbee noted that typically, the Fed would wait for such shocks to fade before raising borrowing costs, but with ongoing supply shocks, the central bank has little choice but to hike rates. He said increases are needed to lower consumer and business demand to a level consistent with reduced supply, which should bring inflation back to the 2% target.

Goolsbee acknowledged that forcing inflation down in the short run would require pushing employment below target, making it 'painful' for workers. His comments contradict those of Fed Chairman Kevin Warsh, who last week stated that raising interest rates does not need to harm labor markets to achieve low inflation.