Fed Grows Hawkish, Goolsbee Prioritizes Inflation
Chicago Fed President Austan Goolsbee said he is now more concerned about inflation than unemployment, marking a shift in tone as surging oil prices increase the risk of more persistent price pressures. In an interview with CNBC on Monday (March 23), Goolsbee said the Fed may need to tighten monetary policy if energy price shocks start to push inflation “out of control,” although he emphasized that all options remain open and that interest rates could move in either direction.
The statement adds to signs that the monetary policy outlook is shifting away from a narrative of rate cuts toward the possibility of a longer-term hold—even opening up room for a hike, though not yet a primary scenario. Some analysts believe that if the Fed does raise rates, it would be a significant shift after months of market focus on rate cuts. At last week's meeting, the Fed kept rates unchanged and maintained its path of cuts this year, but a minority of officials are pushing for an official statement confirming the next step could be a cut or a hike.
Goolsbee emphasized the dilemma of the Fed's dual mandate: an oil shock has the potential to trigger a pattern of stagflation—gasoline and food prices rise while demand and the labor market weaken. With inflation long above the 2% target and "comfortably high" for five years, the added risk of a lasting gasoline-price shock makes the situation a "fraught but intense moment," according to Goolsbee, leading him to place greater weight on inflation risks than on job market weakness.
In the market, expectations have also shifted. After previously predicting two 25-bps cuts this year, derivatives market participants now project interest rates on hold until the end of the year, with the likelihood of a rate hike remaining small. However, dissenting views persist internally: Fed Governor Stephen Miran, in a separate interview, still believes four rate cuts this year are possible, arguing that the central bank can "see through" the oil shock as long as it doesn't spread to core inflation, medium-term inflation expectations, or a wage spiral. Miran was also said to be the sole dissenter in the Fed's decision last week, pushing for a cut.
Source: Newsmaker.id
