Goolsbee says inflation not heading toward 2%, Fed must act

• Inflation is broadening into sectors where prices are not driven by energy costs.
• The labor market appears stable, possibly even tightening a bit.
• Interest rates will eventually fall well below current levels.
• For several months in a row now, we have seen signs of trouble.
• Recently, there has been no progress, and if anything, the situation is heading in the wrong direction.
• Inflation is rising and proving much more persistent than initially expected when it was thought to be only a supply-shock issue.
• The Fed 'definitely has work to do' to uphold its credibility, according to Goolsbee.
• Services inflation and rising healthcare costs are not expected to change rapidly.
• Even if oil prices drop sharply, refining capacity remains a significant problem.
• Goolsbee stated his current view that the economy is not on a path to 2% inflation, and that must be addressed.
• Inflation shocks from overheating demand are extremely difficult to eliminate.
• Until about six months ago, Goolsbee thought AI-related overheating was contained, but he has since revised that view.
• The shocks from tariffs and oil prices were expected to have faded by now.

Goolsbee, previously seen as the most consistent dove on the FOMC, is now discussing demand overheating and the Fed's credibility.

When pressed on a 25-basis-point move vs. a larger one in December, Goolsbee did not commit but also did not push back on the idea. He was also asked about Bessent's warning, which cited the ECB raising rates in 2008 just before the financial crisis. Goolsbee responded politely and immediately returned to the theme of persistent inflation.

There is an out: if tariffs, oil, and the AI squeeze all ease, Goolsbee would be comfortable moving slowly. But he is not forecasting that scenario; he is hoping for it. Goolsbee will have a vote on the FOMC in 2027.