Chicago Federal Reserve President Austan Goolsbee was hopeful inflation would be cooling down by now. Instead, Tuesday’s hotter-than-expected October inflation report marked the second straight month of rising prices — putting the central bank in what Goolsbee warns is a “precarious moment.”
“I was hopeful that we were going to actually see a substantial shrinking of the inflation rate as we rolled through the tariffs and as maybe the price of oil was going to come back down, but it hasn’t really worked out that way,” Goolsbee said at Yahoo Finance Invest. “So we’re at a precarious moment.”
Goolsbee pointed to specific areas of the Consumer Price Index — including services and healthcare — that are showing persistent price pressures unrelated to tariffs or oil.
“It’s worth being sober-minded at a moment like this that we’re inching our way into a territory that’s historically a tough spot for any central bank to try to get rid of that inflation,” he said. “We’d do well to try to prevent it from getting worse.”
The Consumer Price Index rose 0.4% in October, compared with expectations of 0.3%, marking a slight cooldown from September’s 0.6% gain. “Core” inflation, which strips out volatile food and energy prices, rose 0.3%, compared with expectations of 0.2% and unchanged from September.
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Right now, the Fed is trying to untangle two competing drivers of sticky inflation: supply-side shocks, like tariffs and high oil prices lasting longer than expected, along with demand-side overheating fueled by the massive data center build-out.
While Goolsbee noted that inflation tied to AI hasn’t spilled over into the broader economy yet, he stressed that policymakers are watching closely for signs that it might.
“We’ve got to keep an eye on that,” he said. “Those are the kind of things that you’d expect to see if we were getting old-fashioned demand overheating.”
Even the recent wave of newly elected Democratic governors campaigning on data center moratoriums isn’t something Goolsbee views as immediately relevant to the Fed’s inflation fight. For now, he sees the boom as largely contained.
“I believe most of the data center build-out has largely kind of stayed in the AI and tech lane and the adjacent industries,” he said. “If that starts jumping out of its lane and overheating the economy overall, that’s when we’ve got a problem.”
Following the fresh inflation data, markets are now pricing in a roughly 90% chance the Fed hikes by 25 basis points next month, with a 10% chance officials raise by 50 basis points.
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