Austan Goolsbee warns the Fed may need higher unemployment to tame stubborn inflation

WASHINGTON (AP) – A top Federal Reserve official remarked Monday that the central bank may have to cause economic pain in the form of higher unemployment to combat stubbornly high inflation.

What happened

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, remarked in a speech in London that the Fed is facing a series of persistent supply shocks that have driven up inflation, including higher oil costs from the Iran war and tariffs. Typically, Goolsbee observed, the central bank would essentially wait for such shocks to fade and inflation to fall on its own rather than raise borrowing costs.

But faced with an ongoing series of persistent supply shocks, the Fed now has little choice but to hike rates, Goolsbee remarked. The increases are needed to lower consumer and business demand to a level consistent with reduced supply, he continued. It should bring inflation back to the Fed's 2% target.

The bottom line

For now, austan Goolsbee warns the Fed may need higher unemployment to tame stubborn remains the part of the story worth watching, and further updates are likely as more details are confirmed.