Chicago Fed President Austan Goolsbee said on the 21st that U.S. inflation may begin to decline toward the 2% target, but that if it does not, rate hikes will be necessary. He indicated that if inflation takes on a more demand-driven character, the Federal Reserve would need to take more aggressive rate-hike measures, and went further, saying that given the mix of inflationary pressures, the Fed is now in a phase that calls for more action. Goolsbee noted that "at this point there is no problem on the employment side, but there is a problem with inflation," adding that the inflation problem stems not from something persistent but from temporary supply shocks, and that while he hopes it will eventually subside, he wants to see evidence that it is fading away. He also told reporters that "if the underlying trend is coming from overheated demand, the interest-rate response will be more aggressive and more front-loaded," saying that recent data and conversations with business contacts have slightly strengthened his sense that part of it may be coming from overheated demand, citing continued inflation in the services sector and the persistence of the artificial intelligence investment boom as factors.
Goolsbee says more aggressive, front-loaded rate hikes may be needed if inflation proves demand-driven, implying a higher policy rate.
Hawkish Fed commentary signaling possible faster rate hikes pushes the 10-year Treasury yield higher.
