Strong language like this from Goolsbee adds weight to the hawkish run of Fed commentary after the CPI report, and it strengthens pricing for a December hike. His focus on services and expectations points to concern about entrenched inflation, not transitory shocks, which raises the risk of a longer hiking cycle. That backdrop supports the US dollar and front-end Treasury yields, and remains a headwind for gold. With energy feeding the cost side of inflation, oil prices stay central to how hawkish the Fed may need to be.
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Earlier:
- Fed’s Paulson backs further gradual rate hikes, names three triggers for faster action
- Fed’s Bowman: Persistent inflation, firming labor conditions suggest ‘work to do’
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Goolsbee has gone from cautious to alarmed: sticky services prices and broad overheating make inflation a problem the Fed now has to confront.
Summary:
- Goolsbee told PBS NewsHour that the October CPI report was borderline disturbing and that the US has a real inflation issue
- He said the most troubling element is that services inflation is not coming down
- He described inflation as driven by both cost and demand, and fears broad overheating across many prices
- He said it would be a major concern if inflation gets built into expectations
- The job market is steady and stable, he said, and everything is on the table to get inflation back to target
Chicago Federal Reserve President Austan Goolsbee said Tuesday’s consumer price report was “borderline disturbing”, warning in an interview with PBS NewsHour that the US has a real inflation problem that policymakers will have to address.
Goolsbee said the most troubling element of the October data was that services inflation is not coming down. Services prices tend to reflect domestic demand and wage costs more than goods prices do. A lack of progress there suggests price pressures are becoming more entrenched rather than fading as one-off shocks unwind.
He described inflation as being driven from both the cost side and the demand side. His fear, he said, is the emergence of overheating across a broad range of prices, rather than increases confined to a few categories. At the same time, he noted that the job market remains steady and stable, which removes one of the usual arguments for holding back on tighter policy.
Goolsbee said a key concern would be inflation becoming built into expectations, and that the Fed would have to come to terms with it if price pressures stay persistent. He also pointed out that business investment is affected by interest rates, suggesting he is weighing how higher borrowing costs could feed through to spending. He stressed that everything is always on the table and that the Fed must bring inflation down to its target.
The interview added to a run of hawkish commentary from Fed officials after October’s CPI showed a larger-than-expected increase. Earlier on Tuesday, Philadelphia Fed President Anna Paulson said further gradual rate hikes seem appropriate, while Vice Chair for Supervision Michelle Bowman said she was shifting her focus to inflation. Markets are pricing strong odds of a quarter-point hike at the Fed’s December 8-9 meeting.
Goolsbee’s choice of language stands out for an official who has often struck a more measured tone. With services inflation sticky and the labour market holding up, December’s decision will show how far policymakers are prepared to go to stop inflation becoming entrenched.
This article was written by Eamonn Sheridan at investinglive.com.
