Fed's Austan Goolsbee says officials must address inflation failure

Federal Reserve Bank of Chicago President Austan Goolsbee said policymakers need to tackle a potential overheating in the economy from the artificial intelligence build-out and a broadening of inflation pressures.

"We have got to come to terms with this cost side and inflation side failure in the mandate,” Goolsbee said Monday at an event in Chicago.

Fed officials left interest rates unchanged last month after raising them in September for the first time since 2023. Several officials speaking since the meeting have signalled more rate increases are needed.

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Median projections released by policymakers in September showed the majority of officials estimated that at least one more rate increase would be necessary this year to help cool inflation to their 2% target.

Inflation, which has been above the Fed’s goal for more than five years, has broadened out in recent months as elevated energy prices from the Iran war seep into more parts of the economy.

Goolsbee pointed to a run-up in the prices of services, which aren’t closely tied to energy or tariffs, which has also driven up costs. The Chicago Fed chief does not vote on monetary policy decisions this year but will vote in 2027.

“And now this stuff with the AI data center build-out is, to my eye, starting to look more just like old-fashioned demand overheating,” he added, noting that central banks typically need to respond to overheating in an “aggressive” way.

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A report Friday showed strong hiring last month across a broad range of sectors in the US economy. Goolsbee said both the labour market and growth have been stable, with the chief economic problem being too-high inflation.