Chicago Fed’s Goolsbee Warns on Painful Disinflation

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, used a Sept. 21, 2026 speech in London to warn that bringing inflation back to target is likely to involve difficult trade-offs. He said "the only way to bring inflation down is to raise rates and narrow the gap between supply and demand," emphasizing that restraining price pressures requires tighter financial conditions.

Goolsbee stated that "forcing inflation back to target in the short run means pushing employment below target," underscoring the risk that efforts to cool prices could weaken labor market conditions. Speaking with reporters, he described the adjustment as "going to be painful" and said it "would necessarily be painful," highlighting the costs that may accompany restoring price stability.

In explaining why inflation remains stubborn, Goolsbee pointed to a series of persistent supply shocks. He cited higher oil prices tied to the Iran war and the impact of tariffs as factors that have pushed up costs across the economy, complicating the task of returning inflation to the Federal Reserve’s 2% goal.

Alongside those supply disruptions, Goolsbee also noted signs of robust demand contributing to price pressures. He referenced heavy investment in AI data centers as one example of strong spending that is helping sustain inflation, suggesting that both supply and demand forces are playing a role in the current environment.

Goolsbee said the appropriate policy response depends on whether inflation is primarily supply-driven or demand-driven. If inflation is mostly the result of supply shocks, he indicated that one more interest-rate increase could be sufficient to guide price growth lower over time.

However, he cautioned that if incoming evidence shows that inflation is being fueled by persistent demand, policymakers may need to implement more tightening than the single additional hike many officials had projected. This conditional stance underscores the Federal Reserve’s data-dependent approach to setting the path of interest rates.

Goolsbee’s comments came shortly after the Federal Reserve raised its target federal funds rate by 25 basis points in September 2026. That move, the first increase since 2023, lifted the target range to about 3.75%–4.00%, a level commonly reported as roughly 3.9%.

The recent hike provides the context for the debate over how much further policy tightening may be required. With inflation still above target and both supply shocks and strong demand in play, Goolsbee’s remarks highlight the possibility that additional rate increases and weaker employment could be necessary to restore price stability.