Fed's Goolsbee Flags Tariff Risks to Inflation Fight

Chicago Fed President Austan Goolsbee isn't mincing words he says tariffs are a stagflationary shock that can push prices higher while slowing growth, a nasty combo that makes the Fed's inflation-and-jobs balancing act a lot tougher.

Speaking Wednesday, Goolsbee said the effects are already trickling into the data, with price pressures building and the labor market stuck in a low-hiring, low-firing mode. The challenge for the Fed now, he explained, is figuring out which part of its mandate is taking the bigger hit and how long the pain will last.

Some economists suggest brushing off one-time tariff spikes, but Goolsbee's not buying it. That makes me uneasy, he said, warning that multiple months of tariff-driven inflation could force a policy response.

July's CPI showed a bump in services inflation that wasn't tied to tariffs maybe a one-off, maybe not. If it sticks, the Fed's golden path of slowing inflation with steady growth could be in jeopardy.

He's keeping an open mind ahead of the Fed's Sept. 1617 meeting, waiting on wholesale inflation and another CPI print before deciding on rates. If inflation goes the wrong way, we'll have to act, he said.

This article first appeared on GuruFocus.

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