Chicago Fed President Austan Goolsby called the latest inflation numbers “borderline alarming.”
“This is another terrible report. It’s borderline alarming,” Goolsby said in an interview with “PBS NewsHour” on Tuesday.
“We have a real inflation problem and it’s ongoing,” Goolsby said. “We’re going to have to deal with it.”
The Consumer Price Index rose a seasonally adjusted 0.4% in October, the U.S. Bureau of Labor Statistics said Tuesday morning. This exceeded economists’ expectations and marked the third consecutive month of significant price increases.
Goolsby said he hasn’t seen price-increasing factors like tariffs disappear as much as he expected over time. He also said he was concerned about continued high service inflation.
The Chicago Fed president also said high prices are the biggest issue for many people he meets.
“That’s what everyone is thinking about,” Goldsby said. “It’s a business mindset, a nonprofit organization mindset, and a consumer mindset.”
Tuesday’s inflation report reached a critical juncture for central bankers at the Federal Reserve as they consider the next move in interest rates and the moves they may have to take in the coming months if the numbers remain strong.
Goolsby’s comments came after other Fed officials said Tuesday that the Federal Open Market Committee, which sets interest rates, may need to act more decisively to curb inflation.
When the Fed raises or lowers interest rates, it usually moves in quarter-point increments. But Fed Director Christopher Waller said in London early Tuesday morning that the hot inflation report could prompt the Fed to push for a larger rate hike of 0.5 percentage point in December, especially if core CPI, a measure that excludes volatile food and energy costs, is “around 0.3”. A few hours later, that’s exactly what happened.
In a speech after Tuesday’s inflation report, Dallas Fed President Rory Logan said he thought a rate hike of two more quarter points would be necessary, saying, “We may see the FOMC move more quickly this winter than we have seen so far this fall.”
Philadelphia Fed President Anna Paulson was more optimistic. The prime minister acknowledged on Tuesday that “inflationary pressures remain very strong” but said the central bank did not need to act quickly. “For now, further gradual tightening seems appropriate,” he said. “The exact path forward will depend on how the situation evolves, but I will be watching the data closely.”
The committee raised interest rates by a quarter of a percentage point in September to a range of 3.75% to 4%, then voted to leave policy unchanged in October.
Goolsby said it was a “huge concern” that after years of higher-than-desirable price increases, consumers and businesses may be starting to expect higher inflation. If that happens, he said, the process of cooling inflation could become “even more painful.”
But Goolsby declined to say whether he thought those concerns should prompt the Fed to raise rates at its December policy meeting.
“I don’t like to get too specific and tie my hands on the next meeting or future meetings,” Goldsby said.
Waller, Logan and Paulson are voting members of this year’s FOMC, which will vote on whether to raise interest rates at its last meeting of the year in December. Mr. Goolsby will be a voting member next year.
Based on the inflation report and statements from various Fed officials, the federal funds futures market now unanimously expects a rate hike at the December meeting, according to CME’s FedWatch tool.
The question now is whether the central bank will raise interest rates by a quarter of a percentage point or by half a percentage point. Federal funds futures currently have a 15% chance of a half-point rate hike at the next meeting in December.
The probability that interest rates will reach 4.25% to 4.5% by the January meeting (equivalent to one half-point increase or two quarter-point hikes) is currently 60%, and the probability that interest rates will reach 4.5% to 4.75% by then is 10%.
