Fed’s Goolsbee says prolonged inflation above target is "playing with fire"

Investing.com -- Chicago Federal Reserve President Austan Goolsbee warned Tuesday that inflation remaining above the Fed's target for 5-1/2 years represents a dangerous situation that may require policy action.

"The fact we have been 5-1/2 years above inflation target is playing with fire," Goolsbee said Tuesday. He added that the Fed may need to respond to supply shocks that show lasting effects.

Goolsbee described the current situation as unpleasant and said the central bank must consider responding to persistent shocks. He noted that before the Fed can cut rates, "we've got to get some evidence that inflation is coming back down, that these things that are supposed to be temporary are in fact going away."

The Chicago Fed president said he ranks among the more optimistic Fed policymakers regarding his rate-path expectations. He said inflation appeared headed back to the 2% target in 2023 and 2024 before stalling.

Goolsbee highlighted several economic concerns, including the risk that expectations of future productivity gains from artificial intelligence could create overheating in the economy now. He also said massive deficits function as a form of stimulus and can overheat the economy.

On supply issues, Goolsbee said oil prices could decline relatively quickly, but a deeper problem involves getting refineries back online.

The Fed official said policymakers need to revisit the logic of looking through supply shocks. He added that "nothing in the Federal Reserve Act says make sure bond market is happy, stock markets aren't surprised."

Original Article

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