Goolsbee says CPI discouraging, warns more bad months unacceptable

• The CPI figures were labeled as "discouraging" by Goolsbee.
• He flagged service-sector inflation within the CPI as a worry.
• Goolsbee emphasized the importance of looking at the inflation trend rather than any single report.
• His contacts are discussing costs and prices, not expressing concerns about a recession.
• He expressed hope that energy costs would soon drop out of the inflation figures.
• The US economy still has progress to make on bringing inflation down.
• Goolsbee said he does not favor signaling the Fed's policy actions prior to meetings.
• When the economy is strong and inflation remains elevated, the Fed's course is clear.
• The central bank needs to avoid a buildup of overheating in the economy.
• He described himself as more optimistic about the economic outlook compared to other Fed policymakers.
• Evidence is mounting that inflation has not been temporary, given ongoing shocks.
• Goolsbee stressed monitoring service-sector inflation closely.
• Additional months of poor inflation data would be unacceptable, he stated.
• He expressed confidence the Fed will bring inflation down to its 2% target.
• He does not want to constrain the monetary policy outlook.
• If inflation stays at current levels, policy would have to respond.
• Consumer spending, GDP growth and investment have all been robust.
• Hype around artificial intelligence could lead to additional tech investment, risking overheating.
• A pullback in AI investment does not necessarily signal a recession.
• He said the Fed should watch the financial stability implications of AI investment.

Austan Goolsbee, president of the Chicago Fed, described the latest CPI data as discouraging and stated that if inflation remains at its current level, policy will need to respond.

Goolsbee noted that evidence is accumulating that inflation has not been temporary, given ongoing shocks, and that additional months of poor inflation data would be unacceptable. He pointed to services inflation as a worry and expressed hope that energy costs would soon drop out of the figures, while emphasizing the need to watch the overall trend rather than a single report.

According to Goolsbee, the Fed's path is clear when the economy is strong and inflation is elevated, and the central bank must prevent overheating from developing. Consumer spending, GDP and investment have been robust, and his business contacts are discussing costs and prices, not a recession. He stated that he is more optimistic about the economic outlook compared to other Fed policymakers.

Regarding artificial intelligence, Goolsbee cautioned that hype could spur further tech investment and risk overheating, and that the Fed should monitor the financial stability implications. A deceleration in AI investment would not inevitably lead to a recession, he added.

Goolsbee said he does not want to constrain policy and prefers not to signal moves ahead of meetings. Following today's CPI release, the market sees a 40% probability of a rate hike later this month. Kevin Warsh is scheduled to speak late tomorrow, after which the Fed enters its blackout period on Saturday.