Goolsbee calls CPI 'borderline disturbing', flags services and expectations risks

Goolsbee's forceful remarks reinforce the hawkish tone among Fed officials following the CPI release, increasing market expectations for a rate increase in December. His emphasis on services inflation and expectations indicates worries about persistent price pressures rather than temporary factors, heightening the possibility of an extended tightening period. This environment bolsters the US currency and short-term government bond yields, while weighing on gold. As energy costs contribute to inflation, crude oil prices remain a key factor in determining the degree of Fed hawkishness.

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Earlier:

• Fed's Paulson supports gradual rate increases, outlines three triggers for swifter action
• Fed's Bowman says persistent inflation and firming labor conditions mean there is 'work to do'

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Goolsbee's stance has shifted from caution to alarm; persistent services costs and widespread overheating mean inflation is a challenge the Fed must now address.

Summary:

• Goolsbee informed PBS NewsHour that the October CPI figures were borderline disturbing and that the US faces a genuine inflation problem.
• He identified the failure of services inflation to decline as the most concerning aspect.
• He described inflation as originating from both cost and demand sides, expressing worry about widespread overheating across many price categories.
• He stated that inflation becoming embedded in expectations would be a significant concern.
• He noted the labor market is steady and stable, and all options are on the table to return inflation to the target.

Chicago Fed chief Austan Goolsbee described the October consumer price data as 'borderline disturbing' in an interview with PBS NewsHour, cautioning that the US is confronting a genuine inflation issue that officials must tackle.

According to Goolsbee, the most worrying aspect of the October figures was the failure of services inflation to ease. Services costs are more indicative of domestic demand and labour expenses compared to goods prices. The absence of improvement indicates that price pressures are becoming more deeply rooted instead of dissipating as temporary shocks subside.

He characterized inflation as stemming from both cost and demand factors. He expressed concern about overheating spreading across many prices, as opposed to rises limited to a few sectors. Meanwhile, he observed that the labor market continues to be stable, eliminating a common reason for refraining from stricter policy.

A major worry for Goolsbee is inflation becoming entrenched in expectations, requiring the Fed to address it if price pressures remain stubborn. He also noted that business investment is influenced by interest rates, indicating he is considering how increased borrowing costs might impact expenditure. He emphasized that all measures are always being considered and that the Fed is committed to reducing inflation to its objective.

This interview contributed to the series of hawkish statements from Fed officials following the October CPI's higher-than-anticipated rise. Earlier in the day, Philadelphia Fed President Anna Paulson indicated that additional gradual rate increases appear suitable, while Vice Chair for Supervision Michelle Bowman stated she was refocusing on inflation. Traders are pricing in a high probability of a 25-basis-point rate increase at the Fed's December 8-9 meeting.

Goolsbee's phrasing is notable for a policymaker who has typically adopted a more moderate stance. Given persistent services inflation and a resilient labor market, the December decision will reveal the extent to which officials are willing to act to prevent inflation from becoming embedded.