Austan Goolsbee, president of the Federal Reserve Bank of Chicago, recently voiced his worries on the direction of inflation. Specifically, he conveyed this sentiment during an aptly-timed symposium on the Federal Reserve’s monetary policy. He acknowledged that recent consumer and producer price data has introduced uncertainty to the inflation forecast. Services inflation is definitely on the rise and is showing no signs of being a passing fad.
The consumer price index (CPI) for July came in right in line with market expectations. The underlying reading, which leaves out volatile food and energy prices, jumped to 3.1%. This figure was above Wall Street’s expectations and has economists who are closely tracking inflation trends sitting up and paying attention. July’s producer price index (PPI) shocked with an unexpected gain of 0.9% on the month. It’s the biggest jump we’ve had in almost three years.
Goolsbee had once described a rosy “golden path” scenario. Under this scenario, taming inflation’s upward pressures would be consistent with a resilient labor market, opening the door to lower interest rates. He admitted that the latest news is a mixed bag. What’s next Economists expect a softening effect to hit in the data from import duties that former President Donald Trump instituted.
Despite these developments, Goolsbee remains cautiously optimistic. He said that the inflation data was consistent and would heighten his confidence. All of this means that inflation is going in the right, downward direction.
“It all depends on the data and what’s the economic outlook. If we keep getting inflation reports like [previous] ones … I would be very comfortable that, hey, the dust is out of the air, it looks like we’re still where we were, which is a strong economy with inflation coming back down,” – Austan Goolsbee
Goolsbee recognized that there are deep concerns about the inflation trajectory going forward. According to the CME Group’s FedWatch tool, there’s a 55% chance interest rates will be cut again in October. It points to a 43% chance of one more rate move in December.
He stressed the need for clarity from future data, saying, “We’ve got to get some clarity from the numbers.” His comments reflect a broader apprehension among economists regarding the trajectory of inflation as the Federal Reserve navigates its next policy decisions.
Goolsbee wrapped it up by saying that what happens first is very much up to the changing economic data. He noted, “So I feel like we still need another one, at least, to figure out if we’re still on the golden path.”