Chicago Fed President Goolsbee says inflation is too high, calls Warsh 'a serious guy'

• The PCE price index stood at 3.4% in May 2024, the highest level since October 2023, with goods rising 0.4% and services up 0.5%, driven largely by energy (up 6.5%) and transportation services (up 0.8%)
• Markets expect approximately a 30% chance of a rate hike at the Fed's July 28-29 meeting, though Goolsbee declined to commit to a position on future rate moves
• Goolsbee endorsed Warsh's move to streamline Fed communications and reduce forward guidance, noting that 'clearly the problem's on the inflation side' between the Fed's dual mandate of price stability and employment

Summary

Chicago Federal Reserve President Austan Goolsbee emphasized Thursday that inflation remains problematic despite some positive developments, speaking from the Cboe trading floor in a CNBC interview.

Key Inflation Data:

The Commerce Department reported May's personal consumption expenditures (PCE) price index—the Fed's preferred inflation gauge—reached 3.4%, the highest level since October 2023. Price increases were broad-based: goods rose 0.4% and services climbed 0.5% (the largest gain since January). Energy jumped 6.5%, while transportation services accelerated 0.8%, both sensitive to gas prices.

Policy Stance:

Goolsbee acknowledged some improvement in services inflation but stressed that between the Fed's dual mandate of price stability and employment, "clearly the problem's on the inflation side." He declined to commit to a position on future rate moves, with markets pricing approximately 30% probability of a rate hike at the July 28-29 FOMC meeting and higher expectations for September.

Fed Leadership Transition:

Goolsbee praised new Fed Chairman Warsh as "a serious guy" with fresh ideas and a different communication style. The two previously worked together during the 2008 financial crisis. Goolsbee endorsed Warsh's approach to streamline Fed communications by reducing forward guidance and speculation about future rate paths, noting the recent FOMC statement was significantly shorter than usual.

Market Implications:

The persistent inflation readings and hawkish tone from Fed officials suggest interest rates may remain elevated longer than previously anticipated, with potential rate increases still on the table for later in 2026.