Goolsbee Warns of Painful Inflation Fight Ahead

A top Federal Reserve official has warned that fighting inflation may come at the cost of higher unemployment. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, made this statement in a speech in London on Monday.

Goolsbee said that the Fed is facing persistent supply shocks, including higher oil prices from the Iran war and tariffs, which have driven up inflation. Typically, the central bank would wait for these shocks to fade before raising interest rates. However, with ongoing supply shocks, Goolsbee believes that rate hikes are necessary to lower consumer and business demand and bring inflation back down.

'The only way to bring inflation down is to raise rates and narrow the gap between supply and demand,' he said in his remarks. 'Forcing inflation back to target in the short run means pushing employment below target.'

Goolsbee's comments contradict those of Fed Chairman Kevin Warsh, who stated last week that raising interest rates would not harm labor markets. However, Goolsbee believes that it will be painful for workers as a result of the rate hikes.