Goolsbee: "Productivity Hype" Could Force the Fed to Raise Interest Rates
Federal Reserve Bank of Chicago Chairman Austan Goolsbee said increased investment and spending fueled by expectations of future productivity gains could be inflationary and potentially demand higher interest rates from the US central bank. In a speech prepared for a Bank of Japan conference Thursday morning in Tokyo, Goolsbee argued that rising expectations of future incomes operate like today's "wealth increases," which can encourage spending before productivity gains actually materialize.
According to Goolsbee, if spending increases too rapidly, the economy could overheat for longer, necessitating a monetary policy response. "In that case, interest rates will likely need to rise," he added, adding that the greater the "hype" about future productivity, the greater the need for interest rate increases to prevent overheating.
He also emphasized supply-side pressures. Goolsbee noted that supply shocks can dampen inflationary pressures arising from demand activation based on productivity expectations, so inflation risk depends not only on demand but also on how quickly the economy's capacity can be reached.
In a separate interview with CNBC, Goolsbee said he hoped the inflation-fueled Middle East energy shock would be temporary, but he was "not entirely convinced." This statement maintains the narrative that the Fed remains in data-dependent mode and cannot yet ignore the risk of inflation becoming "sticky" again if energy and the supply side continue to be sources of pressure. (asd)
Source: Newsmaker.id
