FED: Goolsbee – Inflation Didn’t Get Worse But Need To See On Path To 2%

Chicago Fed’s Goolsbee (’27 voter) told NPR local radio (audio here) that the standout in yesterday’s inflation data was that it didn’t get worse but that it’s an important challenger over the next couple months to make sure that the path is back towards the 2% target. That’s not surprising, having dissented at the Dec meeting as he wanted more clarity on post-shutdown developments, but seeing rates going down a fair amount if inflation is on track. Speaking on Dec 18, he saw a lot to like in the November CPI report. As for latest attacks on Fed independence, Goolsbee says we’re in a bad spot if Fed Chair Powell’s integrity is being called into question. 

• Q: What stood out to you in the latest inflation report?
• Goolsbee: Well, it didn't get worse, and that stood out. That's nice. Prices are on everyone's mind, but showing that we're, let's say, on a path headed back to 2% is an important challenge for us over the next couple of months. [When asked on whether that counts as good news] Yeah, look, I don't know if that's necessarily good news, but before the lights went out in the government shutdown, we had gotten some semi disturbing reports, and we're wanting to get assurance that things were not getting worse. So maybe it's a bright lining in that.
• Q: Wondering what impact are President Trump's tariffs having on inflation?
• Goolsbee: I think it's pretty clear in the data that tariffs have increased the price of goods pretty significantly. That said, our hope is that over the coming months, you would see this one time increase in costs be one and done, and that that might go away. I'm out here in the Midwest, and the Chicago Fed is the most manufacturing intensive of all the Fed districts in the country. It's still on the minds of business people and of community leaders, their costs, their input costs, their costs that they're paying when they're going into the grocery store. So if that tariff inflation proves to be more lasting than we hope, that would be a serious issue that we'd had to think about.
• Q: What are you going to be looking out for as the economy moves further into 2026?
• Goolsbee: “The best thing about the economy is the growth rate remains pretty strong, and the powerful driver of growth in the economy is not actually AI data center investment. Yes, those are strong, but it is the continued spending of the American consumer that's been the strongest part. So one thing I'm looking for is the consumer going to continue to be the driver of growth. And then on the inflation side, is there evidence that we're kind of putting this spike up in prices behind us.
• Q: On whether there’s a shadow over the data because of the Trump administration putting pressure on Fed Chair Powell and how he sees the situation.
• Goolsbee: The independence of the Fed couldn't be more important for the long run inflation rate in this country. Any place where you don't have central bank independence, inflation comes roaring back, and we've spent the last five years fighting to get the inflation rate down, and that hasn't been easy. And if you're attacking the independence of the Fed, that makes that problem worse. And I will say I consider chair Powell to be a first ballot Hall of Fame Fed chair. And if we're going to get into a circumstance where the independence or even the integrity of chair Powell is in question, we're in a bad spot.