CHICAGO — Austan Goolsbee didn’t sugarcoat it. Inflation remains the economy’s central headache. Yet the latest readings? They offer a hint of relief.
The Chicago Fed president stepped in front of cameras Thursday and called the fresh inflation figures “a little better.” He pointed to fading effects from tariffs and the oil price spike tied to tensions with Iran. Get past those, he suggested, and the central bank might resume its trek toward the 2% target.
“If we can get some of this stuff into the rearview mirror then I think we get back on what I was calling the golden path, which is inflation heading back to 2%,” Goolsbee told Investing.com. “The overall level being in the 3%, that’s too high; that’s not great. The good news is the new information that’s been coming in has been a little better.”
Short. Direct. And it landed at a moment when markets had begun pricing in the possibility of a rate hike as soon as September. That talk has now cooled.
Just days earlier, the Labor Department delivered its July consumer price index report. Headline CPI rose only 0.1% from June. Over the year, the pace eased to 3.4% from 3.5%. Core CPI, which strips out food and energy, climbed 0.2% monthly and 2.5% annually — the latter the lowest in five months. Economists had expected almost exactly that.
Gasoline prices fell sharply again. Shelter costs advanced modestly. Core goods posted a small gain. Services ex-housing showed similar restraint. No blowout. No fresh acceleration. Reuters captured the mood among analysts: the numbers should ease fears of an energy-driven price spiral.
But progress is uneven. And fragile.
Goolsbee has stressed this point for months. In June he warned inflation was “trending the wrong way.” By mid-July he noted a dip to 3.5% headline but cautioned against reading too much into single prints. Now, with two months of softer data in hand, his tone has shifted. Slightly.
“Inflation has been too high and our progress stalled out a little bit and was going the wrong way,” he said. “But now, for a couple of months, we’ve been getting a little bit better readings and hopefully that will continue.”
The economy, he added, feels “fairly stable.” Jobs aren’t collapsing. Growth isn’t cratering. The main worry sits squarely on the price front. That assessment echoes an earlier interview he gave, released in August, where he declared inflation the economy’s biggest problem. “We got an inflation problem and people hate inflation,” he said then, per Reuters.
His focus on prices over labor slack stands out. Unemployment has ticked higher. Hiring has slowed. Yet Goolsbee sees a labor market that is “stable, without being good.” No collapse. No panic. Just enough softness to keep demand from overheating while inflation lingers above target.
Fed Policy Caught in the Middle
This delicate balance explains the central bank’s recent hesitation. In late July the Federal Open Market Committee held its benchmark rate steady in the 3.50%-3.75% range. Five policymakers wanted to raise rates instead. The dissent signaled discomfort with sticky prices even as some growth indicators flickered.
Since then, the July jobs report surprised to the downside. CPI and producer prices both came in tame. Traders have dialed back expectations. Odds of a September hike have collapsed. Markets now lean toward a hold, with some pricing in a cut later this year. The personal consumption expenditures price index, the Fed’s preferred gauge, stood at 3.7% in June. July estimates point to around 3.3%.
Goolsbee doesn’t offer explicit rate guidance. He avoids forward-looking promises. Yet his message is clear: watch the incoming data. If tariff and energy effects truly prove one-off, the path to 2% reopens. If not, officials retain the option to tighten further.
That stance carries weight. As a former White House economist, Goolsbee brings a data-driven perspective shaped by years of watching supply shocks ripple through prices. He knows consumers feel the pinch long after official statistics turn. And he knows financial markets can swing wildly on single reports.
So far this week, stocks have responded positively. Bond yields eased. The dollar gave back some ground. Yet few analysts declare victory. Shelter inflation, though moderating, still runs above 3%. Wage growth hovers near 3.2%. Neither matches the Fed’s ultimate goal.
Oil prices remain a wildcard. Recent geopolitical flares pushed energy costs higher before the latest CPI print reversed some of that. Tariffs on imports, including certain goods from China and elsewhere, continue to filter through supply chains. Goolsbee hopes these pressures fade. History shows such bets don’t always pay off quickly.
Meanwhile, the broader economy refuses to break. Gross domestic product has held up. Consumer spending continues, supported by still-solid balance sheets for many households. Business investment shows resilience in pockets. This stability gives the Fed room to wait. It also raises the bar for any policy shift.
But patience has limits. Inflation has now exceeded the 2% target for more than five years. Americans notice. They remember the peak. They track grocery bills and rent notices with precision that outstrips any econometric model.
Goolsbee gets that. His public comments mix technical analysis with plain-spoken acknowledgment of household frustration. Prices rising too fast. People hate inflation. Simple truths that shape policy more than many models admit.
Recent commentary on X reinforces the tension. Traders debate whether the July CPI truly resets the outlook or merely pauses the earlier hawkish repricing. Some highlight the drop in gasoline as transitory relief. Others point to core services as the stubborn holdout.
The next several reports will decide. August and September CPI prints. The August employment figures. Any fresh signals on tariff implementation or energy supply. Each data point narrows the range of possible Fed moves.
For now, Goolsbee sees cause for cautious optimism. Not celebration. Not a signal to declare mission accomplished. Just evidence that after months of backsliding, the needle may be turning.
The golden path remains in sight. Whether the economy stays on it depends on forces beyond any single policymaker’s control. Tariffs. Oil. Wage negotiations. Consumer behavior. All interact in ways that defy clean forecasts.
Yet the latest numbers buy time. They reduce immediate pressure for rate hikes. They allow officials to study incoming information without rushing. And they remind markets that the Fed’s dual mandate still requires balance — price stability first, but not at the expense of unnecessary damage to employment.
Goolsbee will keep watching. So will his colleagues. The data, as always, will have the final word.