Goolsbee Warns of Aggressive Rate Hikes Amid Demand-Driven Inflation

Chicago Fed President Austan Goolsbee stated that US inflation may have moved past supply-driven issues and is now being fueled by strong demand. He noted that central bankers initially disregarded tariffs and oil price shocks, assuming they would subside without a rate hike.

Goolsbee pointed out that evidence suggests strong demand is contributing to the problem, particularly in the services sector, which indicates cost pressures are not solely tied to ongoing oil price shock. He emphasized that if demand overheats, there's no ambiguity about how the Fed needs to respond, referring to the possible need for higher interest rates.

The Fed raised its policy rate by a quarter of a percentage point last week after a two-day meeting. In a post-meeting press conference, Fed Chairman Kevin Warsh stressed the strength of domestic spending and business investment on the demand side of the economy. Policymakers also removed language from their policy statement that attributed elevated inflation to supply shocks.