Goolsbee Warns Supply Shocks May Require Rate Hikes, Even if Inflation Originates from Supply Side

Chicago Fed President Austan Goolsbee has warned that supply shocks are becoming a persistent feature of the economic landscape, and the Federal Reserve may struggle to curb inflation without causing job market pain.

In prepared remarks delivered at an event in London, Goolsbee noted that recent supply shocks 'are arriving more frequently, hitting harder, and lasting longer.' He cited three categories of pressure: supply chain disruptions, persistently elevated oil prices, and escalating tariff frictions.

Goolsbee argued that if recurring shocks ultimately evolve into sustained inflation, the Fed must still act - otherwise it would fail to fulfill its statutory mandate of price stability. However, he emphasized that such rate hikes need not be as aggressive as those required to combat demand overheating, since the current problem is not simply one of excessively strong demand.

The policy tension between inflation and employment within the U.S. Federal Reserve is intensifying, with Goolsbee's remarks standing in stark contrast to those of Chair Kevin Warsh, who emphasized at a recent press conference that he does not see a fundamental conflict between the Fed's two statutory mandates of price stability and full employment over the medium term.