A top Federal Reserve official says bringing stubborn inflation down will likely be “painful,” suggesting the central bank may need to push unemployment higher. In remarks delivered in London, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, describes the challenge as involving persistent supply shocks that have kept prices elevated.
Goolsbee argues that when supply constraints keep inflation from falling on its own, the Fed has less choice but to raise interest rates to reduce demand. By cooling consumer and business spending, he says policy aims to narrow the gap between supply and demand and return inflation to the Fed’s 2% goal. He frames the trade-off as forcing employment below its target in the short run.
Several outlets note that the Fed typically uses rate hikes to slow borrowing and growth, and that historically such moves have sometimes contributed to recessions. Others highlight that his comments contrast with earlier remarks from Fed Chairman Kevin Warsh, who recently suggested the Fed does not need to harm labor markets to achieve its objectives, even as the Fed increased its key rate to about 3.9%.
