Key points: Chicago Federal Reserve Bank President Austan Goolsbee said on Friday that the Fed is drifting further away from its inflation target and "really does need to do a lot of work to rebuild policy credibility."
The policy official said in an interview that inflation is showing signs of broadening and spreading. Chicago Fed President Austan Goolsbee expressed concern about the latest inflation data, saying in a Friday interview that the Fed will likely need to take policy action.
"I think the central bank really does have a lot of work to do to continue rebuilding its credibility," the official said during an interview on the "US Financial Morning" program.
His remarks came shortly after the US Bureau of Labor Statistics released PPI data, a reference gauge for wholesale prices: it rose 0.3% month over month in October, slightly below expectations, but the year-over-year gain reached 6.5%, the highest since November 2022. The CPI consumer inflation data released earlier this week was also higher than expected.
Goolsbee said the Fed is drifting step by step away from its 2% inflation target. "We have been above 2% inflation for nearly six years. There were periods of improvement in the past, but there has been no progress at all recently, and it could even be said that the situation is worsening," he said.
Goolsbee added: "Inflation is picking up. It has proven far more stubborn than we initially expected when we first faced supply shocks. Now there is also traditional-style demand overheating — the demand from the AI data center construction boom, and it appears to have begun to spill over and spread outward."
The market has fully priced in a 25 basis point rate hike at the Federal Open Market Committee (FOMC) meeting on December 8-9. Futures data from the CME FedWatch tool shows the probability of a 50 basis point hike is above 10%.
Goolsbee currently does not have an FOMC vote, but will become a voting member in 2027. Earlier this week, Fed Governor Waller said he would consider supporting a 50 basis point rate hike based on this week's inflation data.
Goolsbee did not directly predict whether the Fed needs to take more aggressive tightening measures. "It all comes down to one question: What is the current inflation situation? Are we on the path back to the 2% target?" he said. "Judging from my assessment, we are not currently on that path."
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