Charles Goolsbee: Inflation poses a serious risk to the economy

Charles Goolsbee, president of the Federal Reserve Bank of Chicago, said that inflation remains the Federal Reserve’s main concern despite signs of easing in the U.S. labor market. According to him, the central bank needs to remain cautious, since price growth is still noticeably above the 2% target.

Goolsbee noted that the latest labor-market data do indeed point to some cooling in the economy. In July, the number of jobs in the U.S. unexpectedly fell by 23 000, and data for previous months were revised sharply lower. This sparked fresh debate over whether the Federal Reserve should ease monetary policy.

However, Goolsbee believes that a weaker labor market does not eliminate the inflation problem. He said the Fed must aim simultaneously for stable prices and maximum employment, but in the current situation inflation represents the more serious risk to the economy.

He pays special attention the official to the impact of tariffs on prices. Higher import duties introduced by President Donald Trump’s administration are gradually beginning to show up in consumer prices. Companies may initially absorb some of the additional costs, but over time an increasing share is passed on to buyers.

Goolsbee did not speak directly about what the September rate decision should be. He stressed that before the next meeting the regulator will receive additional data on inflation, employment and economic activity. Therefore, he said, it is premature to conclude that a rate change is necessary now.