Goolsbee Strikes Hawkish Tone at Jackson Hole, Says US Rates Aren’t Historically High

Chicago Fed President Austan Goolsbee

Inflation the key variable, adding to pressure for more rate hikes

Austan Goolsbee, president of the Federal Reserve Bank of Chicago and one of the Fed’s best-known doves, said persistent inflation is the biggest variable for the US economy. He also said long-term Treasury yields above 5% reflect a combination of fiscal deficits, inflation expectations and bond issuance by large artificial intelligence companies. By historical standards, he added, those yields are not especially high.

The remarks suggest Goolsbee sees room for the Fed to raise its benchmark rate further to bring inflation back to 2%.

Speaking to reporters on Aug. 27 at the Fed’s annual Jackson Hole symposium in Wyoming, Goolsbee said, “The big variable is whether high inflation is going to persist or disappear.” His comments highlighted concern that US inflation could become entrenched after running above the Fed’s 2% target for 65 straight months.

‘Current Rates Can’t Contain Inflation’ as Hawkish Fed Voices Grow Louder

Regional Fed Presidents Say It Is Time to Act, Raising Odds of a Rate Hike This Year

Goolsbee said on Aug. 27 that long-term Treasury yields in the 5% range are “not high by historical standards.” He said inflation expectations were a factor early in the rise, but more recently other forces appear to have taken over, including bond issuance tied to artificial intelligence.

The Fed’s annual policy symposium opened that day at Jackson Lake Lodge in Grand Teton National Park, Wyoming. Goolsbee’s hawkish comments matched the broader mood at the event. Attendance usually picks up around 6 p.m., when the opening dinner begins, but this year the lodge was already crowded by early afternoon. One word kept surfacing in conversations among economists and market participants: inflation.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, and Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, also delivered hawkish messages in CNBC interviews on Aug. 27, adding momentum to calls for higher rates to return inflation to the Fed’s 2% target.

Even Centrists Are Turning Hawkish

Hammack, widely seen as one of the Fed’s leading hawks, set the tone. In an interview with CNBC, she said inflation has remained above the Fed’s target for more than five years and that monetary policy is not restraining the economy. She was one of three officials who dissented at last month’s Federal Open Market Committee meeting, favoring a rate increase over a pause. “I don’t want to prejudge it, but now is the time to act,” she said.

Schmid, wearing a cowboy hat emblematic of Wyoming, also aligned himself with the hawkish camp. He said price pressures remain stubborn and sticky, and that he is not sure what monetary policy is constraining. Asked whether he agreed with the three officials who supported a rate increase, Schmid said he was closer to that camp. It was unusual for the Kansas City Fed chief, whose bank hosts the Jackson Hole meeting, to signal his stance before the symposium got underway.

Susan Collins, president of the Federal Reserve Bank of Boston and often viewed as a centrist, also appeared to shift in a hawkish direction. In an interview with The Wall Street Journal on Aug. 27, she said she could support another rate increase if sustained evidence of cooling inflation does not emerge. Goolsbee, who also made hawkish comments in an interview with the Korea Economic Daily at the venue, said in a podcast released that day that his biggest near-term fear is that inflation is not under control and that everyone should remain alert.

‘Monetary Policy Is Not Restrictive’

Fed officials’ increasingly hawkish tone comes as inflation has remained above the 2% target for 65 straight months. The personal consumption expenditures price index for July, released on Aug. 26, rose 3.7% from a year earlier, well above target. Core PCE, which excludes food and energy, was 3.3%, unchanged from the previous month.

While the data were broadly in line with market forecasts, inflation staying in the 3% range remains a burden for the Fed. Hammack’s comment on Aug. 27 that expectations for persistent inflation are beginning to take hold reflects concern over a cycle of rising inflation expectations, stronger wage demands, higher corporate costs and renewed price pressure.

The shift also reflects growing doubts within the Fed over whether current policy is actually restraining the economy. With the labor market and consumer spending holding up, the benchmark rate of 3.5% to 3.75% is now close to the 3.7% inflation rate. That makes it difficult to argue that policy is restrictive.

Markets still lean toward a hold in September rather than a rate increase. CME FedWatch puts the probability of no change at 66.3%, compared with 33.7% for a hike. Fed Chair Kevin Warsh has also expressed concern about inflation while maintaining a cautious stance on further tightening.

But a string of hawkish comments from regional Fed presidents at Jackson Hole has increased the likelihood of another increase this year. The probability that the benchmark rate will remain unchanged at the December FOMC meeting stands at 25.8%, making that the minority view.

Jackson Hole, Wyoming/Washington — Hwang Jung-su; Lee Sang-eun, Korea Economic Daily correspondent, hjs@hankyung.com