By Michael S. Derby
Oct 14 (Reuters) – Federal Reserve Bank of Chicago President Austan Goolsbee said on Wednesday the latest consumer-level inflation data left him worried about the state of price pressures.
The September consumer price index data, which showed higher-than-expected price pressures, was “discouraging,” Goolsbee said in an interview with Yahoo Finance.
When it comes to the price pressure data, “I’m concerned, related to not just the overall number, but if you break out the components, services inflation shows little sign of improvement,” the official said, while affirming the central bank will get inflation back to its 2% target.
Goolsbee stopped short of saying how he thinks the central bank should respond with rate policy in the near term while saying in strong terms that the Fed can’t allow high price pressures to persist.
If inflation pressures remain elevated, “there’s not ambiguity about what, how the central bank has to deal with that,” he said. “You must prevent the buildup of overheating, because if you get overheating buildup on the demand side, that tends to be very persistent and hard to get rid of,” Goolsbee said.
The Fed raised its interest rate target by a quarter percentage point last month to between 3.75% and 4% and penciled in an additional increase by the end of the year, as it works to get inflation to its 2% target.
Key Fed officials have waved markets off expectations of a rate hike at the Federal Open Market Committee meeting set for the end of the month, though the release of the CPI data put new life into market expectations that the central bank may move again sooner rather than later.
In the interview, Goolsbee explained that the inflation data showed that price pressures are high even in the areas outside those directly impacted by things like tariffs, which is in part why he found the latest report to be so vexing.
“This month’s reading is over 5% for services inflation and you can’t really attribute services inflation to tariffs, to oil prices, or things like that,” Goolsbee said.
“On the ground here in the Midwest, everywhere we’re going, we’re hearing about costs and we’re hearing about prices,” Goolsbee said. “There’s very little that we’re hearing that sounds like downturn, risks of recession and things like that, so that makes you more nervous about demand side overheating than just straight supply shock.”
The Fed has failed to get inflation back to its 2% target for over five years, though officials say market and public expectations data shows continued confidence that price pressures will be brought under control.
(Reporting by Michael S. Derby, Editing by Franklin Paul and Cynthia Osterman)
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