Chicago Federal Reserve President Austan Goolsbee indicated that while recent inflation figures are encouraging, he requires more sustained evidence of a slowdown before confirming that price pressures are steadily returning to the Fed's 2% target.
Speaking on Friday, Goolsbee expressed optimism over this summer's Consumer Price Index (CPI) readings, suggesting that disruptions from tariff impacts and rising energy costs are gradually being absorbed.
"The data from the past three months gives me confidence," Goolsbee stated. "If we can see three or four consecutive months similar to June's figures, I will be more assured that inflation is on a path back to 2%."
He also noted that at the July policy meeting, he supported keeping interest rates unchanged, highlighting inflation as the primary concern. Regarding growth and the labor market, he described the U.S. economy as "broadly stable" at present.
Driven by improved inflation data and weakening hiring activity, market expectations for further rate hikes have diminished significantly. Federal funds futures data shows that one month ago, markets anticipated at least two rate increases this year, with the first potentially in September. Now, the probability of a September hike has fallen to about 30%, with traders pricing in just a single increase for the year.
Historical lessons shape Goolsbee's cautious stance on inflation
Goolsbee's caution is rooted in historical precedent. The Fed's track record in combating high inflation, along with the post-pandemic inflationary experience—where inflation peaked above 7% in 2022 and took over five years to return to target—has made him more conservative in his policy judgments. Goolsbee remarked, "Both of these historical episodes genuinely influence my current thinking. They make me more vigilant on the inflation side. History, both recent and past, shows that once inflation takes hold, eliminating it is painful and difficult."
Although the Fed held rates steady for the fifth consecutive month in July, internal divisions are growing. At the July meeting, three policymakers dissented, advocating for a 25-basis-point rate increase, reflecting lingering doubts among some officials about whether inflation can return to target without additional tightening.
Productivity trends intersect with AI narrative and monetary policy direction
Goolsbee also expressed concern over recent softening in productivity data. Productivity growth has eased over the past few quarters, decelerating noticeably from its highs last year. He hopes this is merely a temporary fluctuation in an otherwise volatile data series.
Some economists and officials, including Fed Chair Powell, believe that new technologies like AI are helping businesses improve efficiency, potentially driving faster economic growth without stoking inflation. Goolsbee noted that if productivity gains are not sustained, "it would fundamentally alter the entire narrative around AI and productivity growth, as well as its implications for monetary policy and the economy."
However, Goolsbee also issued a caution: faster productivity growth does not necessarily imply that the central bank should cut rates. He argued that productivity improvements could spur massive investment demand—as seen with the enormous capital flowing into AI—and potentially lead to economic overheating.
Addressing recent discussions about reducing the number of annual policy committee meetings, proposed by some including Powell, the Fed's rate-setting committee currently meets eight times per year. Goolsbee stated he has no strong opinion yet on the appropriate meeting frequency and looks forward to recommendations from five working groups established by Powell to evaluate this issue and other related matters.
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