Goolsbee Warns Inflation Fight Will Be 'Painful'

A top Federal Reserve official has warned that fighting inflation will be 'painful' and may require higher unemployment.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, made the comments in a speech in London. He noted that the Fed is facing persistent supply shocks, including higher oil prices due to the Iran war and tariffs, which have driven up inflation.

Goolsbee said that typically, the central bank would wait for such shocks to fade and inflation to fall on its own rather than raise borrowing costs. However, with ongoing supply shocks, the Fed has little choice but to hike rates to lower consumer and business demand to a level consistent with reduced supply.

The increases are needed to bring inflation back down to the Fed's 2% target, Goolsbee said. He noted that forcing inflation back to target in the short run means pushing employment below target, which would be 'painful'.