Goolsbee: Fed Clearly Has Work to Do on Inflation ... Pandemic Supply Shock Compounded by Overheated AI Demand

[Financial News]  

Austan Goolsbee, president of the U.S. Federal Reserve Bank of Chicago, reiterated the need for a rate hike on the 13th (local time).
In an interview with CNBC that day, Goolsbee said the U.S. central bank would have to take action. He stressed, “The central bank clearly has to do something if it is to keep rebuilding its credibility.”
The October Producer Price Index (PPI), released that day by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor, rose 0.3% from the previous month and 6.5% from a year earlier. The month-over-month increase was slightly below market forecasts, but the year-over-year increase was the highest since November 2022.
The October Consumer Price Index (CPI), released earlier on the 10th, also showed that inflationary pressure had intensified. The overall CPI rose 0.4% from the previous month, while the core CPI, which excludes energy and food, rose 0.3%; both increases were 0.1 percentage point above market expectations.
After the CPI report, Fed Governor Christopher J. Waller, one of the Fed’s leading doves, also said a 0.5-percentage-point hike in December—the so-called “big step”—would be necessary.
Goolsbee said, “It has been above 2% (the Fed’s target) for nearly six years. There have been times when there was progress, but recently there has been no improvement. If anything, it means things are moving in the wrong direction.”
He added, “Inflation is rising. It is proving much more persistent than we expected when the supply shock began. With the familiar ingredient of overheated demand driven by AI data center construction added to the mix, it looks as though the lane is starting to widen.”
Inflation, which began with global supply shocks during the COVID-19 pandemic in 2020, has in recent years also brought on overheated demand—the recurring driver of price increases—triggered by the AI data center construction boom, putting simultaneous pressure on prices from both the supply and demand sides.
Markets see a rate hike at the Federal Open Market Committee (FOMC) meeting on the 8th and 9th of next month as nearly certain.
According to the CME Group’s FedWatch Tool, the probability of a 0.25-percentage-point rate hike stands at 89.4%. The probability of a 0.5-percentage-point hike is also 10.6%.
The three major New York stock market indexes closed lower, weighed down by a decline in Nvidia shares and inflation concerns.

[email protected] Song Kyung-jae Reporter