President, Federal Reserve Bank of Chicago
Now Less Optimistic on Disinflation Progress Says Fed's Goolsbee
Federal Reserve Bank of Chicago President Austan Goolsbee says he is less optimistic about disinflation progress and adds that there needs to be more clarity on where inflation is headed. He speaks with Mike McKee on Bloomberg Television.
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About Austan Goolsbee
Austan Goolsbee, president of the Federal Reserve Bank of Chicago, has recently expressed increased concern about inflation, stating that progress on disinflation has stalled and that the inflation rate is now rising. In multiple interviews in May and June 2026, Goolsbee noted that inflation has been above the Fed's 2% target for five years, and that after a period of progress, the improvement stopped last year and has recently deteriorated. He pointed to "warning signs" in services inflation, which he described as "high and rising" and not attributable to temporary factors like tariffs or oil prices. Goolsbee said he dissented from a rate cut at the last meeting of the previous year, feeling it was too early, and that he does not regret that position. He stated that the job market has been "stable without being good" and that, given the inflation picture, it "behooves us to take a serious look at what's happening on the inflation side." On artificial intelligence, Goolsbee said in late May 2026 that while AI is "coming in fast" and will be "massively transformational," he does not expect rapid job losses, citing industries where the "oops factor" makes AI unreliable. He advised that health care is likely to remain a secure industry due to an aging population. Regarding the Federal Reserve's communications, Goolsbee expressed skepticism about the use of forward guidance and "committing three years ahead forecasts," and welcomed a communications task force organized by the chair. He also commented on incoming Fed Chair Kevin Warsh, saying he expects Warsh to bring "a lot of new ideas on monetary policy" and that it is "good" to have new ideas, while declining to specify a preferred direction for reducing the Fed's balance sheet.
Transcript (18 segments)
I
Interviewer0:00
Did you basically walk away from that thinking, okay, employment is off our worry list for right now?
A
Austan Goolsbee0:06
Yeah, for the month. I mean, it felt like a pretty stable month. The unemployment rate is still holding kind of stable, decently positive on the payroll employment growth given the context of where we've been. So, you know, you never want to make too much of one month, but it wasn't a worry point for sure.
I
Interviewer0:31
Well, a couple months in a row now, we've had decent job creation at an unemployment rate that is basically stable. So, is inflation the main danger right now?
A
Austan Goolsbee0:39
I've been feeling that, as you know, I'm optimistic fundamentally. If we get some progress on inflation and we show we're headed back to a path on our way to 2% inflation, I'm optimistic rates can go down. We just haven't been having that now for some time, and that makes me more concerned. And I'm less optimistic. We've been above the 2% Fed inflation target for five years, and we were at least making progress for much of that time. Last year we stopped making progress, and the hope was the pause in progress was going to be temporary as the tariffs increased one cost one time and then went away. That we would add now an oil shock on top of things before the other went away. So we're not really sure if or when that part is going to go away. I think for me, that makes inflation the topic of the moment. We got to get some clarity within.
I
Interviewer1:54
Where do you stand on the bias debate? You didn't join in. You weren't a voter, so you couldn't vote to dissent. But do you support or are you sympathetic to that idea?
A
Austan Goolsbee2:04
I look, before I ever got to the Fed, I was always a little skeptical about the value, appropriateness of using forward guidance to begin with, saying things that the committee doesn't think it's going to do X thing for some number of months, or committing itself to two actions well in the future. I think that can be unwise to use at moments where we're not at the zero lower bound, when that kind of behavior really started, when we're at the zero lower bound, when you can't change the rates. Now, we're not in that circumstance. I usually don't get too worked up about the exact wording of the statement of this kind of form, because we don't know what the conditions are that the committee is going to be facing at even at that next meeting, much less multiple meetings in the future. So, let's just take a step back and take a deep breath. To the extent that incoming chair Walsh says he wants us to think about communications in the statement, he's expressed some not regrets, but some reservations, let's say, about the use of forward guidance. I'm pretty sympathetic with his view.
I
Interviewer3:33
Well, is a decision by most people to leave the bias statement in, as it was, basically sort of not tying the hands of the incoming chairman?
A
Austan Goolsbee3:45
I don't know, you know, the rules. I'm not allowed to. I can speak only for what I think, not for what anybody else thinks or what's behind their votes. I don't see how you can look at the current situation, and at least to me, view that the only thing that's on the table, conceivably, are rate cuts. Inflation's been above the target for five years. Stalled out. The progress stalled out last year. In the last 3 or 4 months you've seen it deteriorating. The inflation rate is rising. The new data that are coming in are worse than the months before. And you're seeing it in categories where it's not supposed to be. If it was just tariffs or oil prices, like core services inflation. So I'm still hopeful that that's going to prove temporary. But if we start to see a deterioration of inflation expectations and the unemployment rate and the job market looks stable, I don't. I think for all credibility of the Fed, we have to be paying attention to the inflation rate when it's deteriorating and going the wrong way.
I
Interviewer5:06
Well, let me ask you about what you think of expectations right now, because in his last press conference, Jay Powell noted that we'd had this series of supply shocks and that people were maybe getting used to the idea that inflation is normally this high.
A
Austan Goolsbee5:23
Yeah. That's bad. I mean, if we start to see that in the data, as you know, we've got a long history in the United States and in other countries that if people begin assuming that inflation is going to continue at higher than desired rates, it becomes a lot harder to get rid of the inflation. And it puts the central bank in a lot tougher.
I
Interviewer5:48
Do you think that's what people are thinking these days?
A
Austan Goolsbee5:50
I hope not, but in history when the price of oil, specifically the price of gasoline, a very public price, when it goes up, there is a lot of consumer level expectation that responds to the price of gasoline in kind of an outsized way. So before it showed up in the data, as soon as the war began and the price of oil surged, I said I would not be surprised if we saw a significant deterioration of consumer confidence, which we then did see. And we better keep an eye on the inflation expectations, because a lot of times it has had its lowest Michigan numbers ever today. But if you raise rates, it's not going to open the Strait of Hormuz. It's not going to be tariffs.
I
Interviewer6:40
So great. So is that a viable strategy at this point or are you risking demand destruction?
A
Austan Goolsbee6:48
Yeah. You are risking demand destruction. And, you know, you're just restating, rediscovering what makes stagflation shocks among the worst things that a central bank has to deal with. Because if you face a negative supply shock that destroys employment and drives up prices at the same time, raising the rates doesn't solve your problem. Cutting the rates doesn't solve your problem, and leaving your rates where they are doesn't solve your problem. So the monetary framework that we passed unanimously. In it, we thought about, well, what will we do if we get shocks that are hitting both sides of the mandate at the same time? And we said quite reasonably, we'll look at, well, which side is deviating more, and how long do we think the deviation is going to last? I still think that's the reasonable way to think about it, but I will emphasize, as I say, the job market has been stable for a year, year and a half. The part that is deteriorating, and what has moved me from optimistic about rate cuts to less optimistic, is that inflation alone is getting worse. It's not even stalled out in progress. It's getting worse. Where the job market has been stable. So I kind of think by the criteria we outlined in that framework review, we got to, it behooves us to take a serious look at what's happening on the inflation side.
I
Interviewer8:18
What we assume a week from today there will be a new chairman of the Fed and away from policy, in terms of policy making, there are changes he wants to make. Let me run through a few of them and see what you're thinking. One of the things he's concerned about is the dot plot in the SEP. And the fact that everybody focuses on the median. Would you be in favor of eliminating or changing either one of those?
A
Austan Goolsbee8:45
I could be. I mean, I'm going to be interested to see what, presuming he's confirmed as chairman, see what he proposes. I've written in past years about some dissatisfaction that I've had about the release of the dot plots and the ways in which it doesn't help to identify what the reaction function is of the committee. So I think that Kevin Warsh is going to come in with a lot of new ideas on monetary policy, on balance sheet communication, and those I think it's good. We need, let's have some new ideas and think those through.
I
Interviewer9:27
The balance sheet, of course, is the big question. He wants to bring it down. There's a couple different ways you can do it. Do you think the balance sheet needs to be smaller? And if so, how would you go about it?
A
Austan Goolsbee9:39
I don't know, but needs to be smaller. Can't be smaller. Depends in large measure how you conduct monetary policy, as you know. But in the older days, up to 2008, we conducted monetary policy mostly through open market operations. Now we've shifted to this, as we call it, the ample reserves regime. We pay interest on reserves. That's a different way of doing monetary policy. And it corresponds with a bigger balance sheet than the old way. You could do it any number of ways. And like I say, it's not my position to weigh in and say, I want us to do it A, B or C direction. I'm interested in seeing what the new chair has in mind and evaluating that.