Goolsbee Wants 3 More Months of Cooling Inflation Before Fed Acts

Chicago Fed President Austan Goolsbee wants three more months of cooling inflation data before he is convinced prices are returning to the Federal Reserve's 2 percent target.

Chicago Fed President Austan Goolsbee said recent inflation readings are encouraging but he needs three to four more months of similar data to confirm prices are returning to the Fed's 2 percent target.

"The past three months of data have encouraged me. If we can see three or four consecutive months of data similar to June, I will be more confident that inflation is on track to return to 2 percent," Goolsbee said Friday.

Goolsbee supported holding rates steady at the July Federal Open Market Committee meeting, listing inflation as his top concern while describing the US economy as "broadly stable." Federal funds futures show the probability of a September rate hike has fallen to about 30 percent, down from expectations of at least two increases this year a month ago. Three FOMC members dissented at the July meeting in favor of a 25 basis point hike.

The Fed has held its benchmark rate at a 23-year high for five consecutive meetings. Goolsbee's caution reflects the painful history of fighting inflation — prices peaked above 7 percent in 2022 and have spent more than five years above target. If inflation fails to cool, the Fed may need to resume tightening; if it does, markets could price a more accommodative path.

Goolsbee's stance puts him at odds with the three dissenting officials who argued for an immediate increase, exposing a widening split inside the central bank. His caution is rooted in two episodes: the Fed's long battle against inflation in the 1980s and the post-pandemic surge that peaked above 7 percent in 2022 and has kept prices above target for more than five years.

"Both of those histories have shaped my current policy thinking, making me more vigilant on the inflation side. History and the past five years both show that once inflation takes hold, eliminating it is painful and difficult," Goolsbee said.

Productivity Slowdown Complicates the AI Narrative

Goolsbee also flagged a softening in productivity growth, which has slowed over recent quarters from last year's highs. He hopes it is a temporary blip in a volatile data series. Some economists and officials, including Fed Chair Kevin Warsh, argue that AI and other new technologies are helping companies lift efficiency, potentially allowing faster growth without inflation pressure.

Goolsbee said that if productivity gains prove unsustainable, "it would fundamentally change all the narratives about AI and productivity growth, and their implications for monetary policy and the economy." But he cautioned that faster productivity does not necessarily justify rate cuts — it could fuel large investment demand, as the flood of capital into AI shows, and risk overheating the economy.

Rate Path Hinges on Data

The next FOMC meeting is scheduled for September. Goolsbee declined to specify a preferred timeline, saying decisions will be data-dependent. The shift in futures pricing — from at least two hikes expected a month ago to roughly one now — shows how quickly the outlook has changed as inflation data improved and hiring softened. For households and businesses, the path of rates directly shapes borrowing costs for mortgages, auto loans and corporate investment, while a clearer inflation trajectory helps the Fed gauge whether it can avoid a recession.

This article is for informational purposes only and does not constitute investment advice.