Fed's Goolsbee: PCE Inflation Set to Trail CPI

Remarks of Officials

Summary:

Chicago Federal Reserve President Austan Goolsbee on Thursday said he does not expect the inflation reading the U.S. central bank uses to set its inflation target to be as “sobering” as the previously reported Consumer Price Index figures.

"My view is, before we got to the uncertainties from policy and from geopolitics and from some others, the overall thing (inflation) looked pretty good to me," Austan Goolsbee, Chicago Federal Reserve President, said. The Labor Department reported a larger-than-expected 0.5% month-over-month increase in CPI for January. The year-on-year figure also climbed back to 3% for the first time since June, having risen each month since September. The comparable Personal Consumption Expenditures Price Index the Fed uses for its 2% inflation target is due to be released next week, and most economists estimate it will show less of an increase than reflected in the CPI.

In his discussion about the labor market, Goolsbee described it as "epically strong." He suggested that the job market remains robust despite uncertainties around immigration policy. Over half of the labor force in the past decade has been composed of new workers, many of whom are likely immigrants.

President Trump has recently proposed or implemented a series of tariffs. Last week, Trump announced a 25% tariff on steel and aluminum imports and plans to impose "reciprocal tariffs" on other countries. Additionally, there are considerations for tariffs on automobiles, semiconductors, pharmaceuticals, and lumber this week. Goolsbee expressed concern about the potential for these large-scale tariffs to cause a significant supply shock, which could exacerbate inflation, similar to the effects seen during the COVID-19 pandemic.

The tariffs imposed during Trump's first term as president did not have a material impact on inflation, Goolsbee said, in part because they were narrower and included enough exemptions that supply networks were not affected. But in thinking about the more broad-based and higher tariffs currently in development by Trump," it depends on how many countries they are going to apply to and how big are they going to be. And the more it looks like a COVID-sized shock, the more nervous you should be about that."

Goolsbee said it's important to remember that great progress has been made in bringing inflation down from the four-decade highs reached in 2022, but the level of uncertainty around the economy and the evolving policies of the new Trump administration around tariffs may be having an impact. If tariffs raise prices, the Fed has to think about it.

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Fed's Goolsbee: PCE Inflation Set to Trail CPI

Risk Disclosure