"Inflation isn't good enough!" Chicago Fed President Goolsby: Oil price shock shatters rate cuts.
2026-03-25 11:17:30
Chicago Federal Reserve President Austan Goolsbee said on Tuesday (March 24) that the Fed needs to see clear progress in declining inflation before it can be realistic about cutting interest rates this year. However, the near-term inflation outlook is not optimistic due to the sharp rise in energy prices caused by the war in Iran.
Goolsby points out that the energy price shock will further push up prices before previous inflationary pressures have been fully absorbed, adding additional uncertainty to the Fed's policy path. The target range for the federal funds rate remains at 3.50%-3.75%.
Goolsby emphasized that for a realistic possibility of further interest rate cuts this year to materialize, there must be confidence that inflation is reliably on its way back to the 2% target. According to the Fed's preferred PCE inflation gauge, the 12-month inflation rate ending in February is projected to be close to 3%, marking five consecutive years above the target level.
He warned, "Energy price shocks could push inflation up, and this is happening before we have fully digested previous inflation shocks." Goolsby believes that current inflation levels are "not good enough" and the Federal Reserve must remain patient.
The conflict with Iran has disrupted shipping in the Strait of Hormuz, causing global oil prices to fluctuate at high levels. U.S. gasoline prices have climbed by approximately 33%, with the national average approaching $4 per gallon, the highest level since August 2022.
Goolsby and other Federal Reserve officials pointed out that high oil prices not only directly push up inflation through fuel prices, but also amplify cost pressures through the spillover effects of energy as a major industrial input. Currently, the interest rate futures market has largely erased expectations of a rate cut in 2026 and has begun pricing in a possible rate hike before the end of the year.
The Federal Reserve kept its benchmark interest rate unchanged last week, but since the meeting, several officials have said that the uncertainty surrounding the war with Iran has cast a shadow over that outlook.
Goolsby points out that if inflation behaves well, multiple rate cuts are still possible; however, if oil prices continue to rise and inflation gets out of control, rate hikes will also be included in the policy options. Currently, market expectations for the Fed's policy path this year have clearly shifted to caution.
In the short term, the Federal Reserve will most likely remain on hold until the path of inflation decline becomes clearer. The duration of the Middle East conflict and the trend of energy prices will be decisive variables. If the conflict eases quickly and oil prices fall, the window for interest rate cuts may gradually open in the second half of the year; conversely, the risk of rising inflation will force the Federal Reserve to maintain a restrictive policy or even consider raising interest rates.
Investors should closely monitor subsequent inflation data, oil price movements, and statements from other Federal Reserve officials. Goolsby's remarks once again reminded the market that, amid heightened geopolitical uncertainty, the Federal Reserve will prioritize managing inflation risks.
Chicago Fed President John Goolsby signaled caution, emphasizing that rate cuts this year would require significant progress in inflation, while the energy price shock triggered by the Iran war poses a major upside risk. With inflation now above target for five consecutive years and gasoline prices nearing $4 per gallon, the Fed's policy decisions are becoming increasingly complex.
Overall, the likelihood of the Federal Reserve maintaining interest rates unchanged in the short term has increased significantly, and the cooling of market expectations for easing will continue to affect global asset pricing.
Goolsby points out that the energy price shock will further push up prices before previous inflationary pressures have been fully absorbed, adding additional uncertainty to the Fed's policy path. The target range for the federal funds rate remains at 3.50%-3.75%.
Goolsby's core statement
Goolsby emphasized that for a realistic possibility of further interest rate cuts this year to materialize, there must be confidence that inflation is reliably on its way back to the 2% target. According to the Fed's preferred PCE inflation gauge, the 12-month inflation rate ending in February is projected to be close to 3%, marking five consecutive years above the target level.
He warned, "Energy price shocks could push inflation up, and this is happening before we have fully digested previous inflation shocks." Goolsby believes that current inflation levels are "not good enough" and the Federal Reserve must remain patient.
Impact of energy price shocks
The conflict with Iran has disrupted shipping in the Strait of Hormuz, causing global oil prices to fluctuate at high levels. U.S. gasoline prices have climbed by approximately 33%, with the national average approaching $4 per gallon, the highest level since August 2022.
Goolsby and other Federal Reserve officials pointed out that high oil prices not only directly push up inflation through fuel prices, but also amplify cost pressures through the spillover effects of energy as a major industrial input. Currently, the interest rate futures market has largely erased expectations of a rate cut in 2026 and has begun pricing in a possible rate hike before the end of the year.
Federal Reserve Policy Outlook
The Federal Reserve kept its benchmark interest rate unchanged last week, but since the meeting, several officials have said that the uncertainty surrounding the war with Iran has cast a shadow over that outlook.
Goolsby points out that if inflation behaves well, multiple rate cuts are still possible; however, if oil prices continue to rise and inflation gets out of control, rate hikes will also be included in the policy options. Currently, market expectations for the Fed's policy path this year have clearly shifted to caution.
Market Outlook and Risks
In the short term, the Federal Reserve will most likely remain on hold until the path of inflation decline becomes clearer. The duration of the Middle East conflict and the trend of energy prices will be decisive variables. If the conflict eases quickly and oil prices fall, the window for interest rate cuts may gradually open in the second half of the year; conversely, the risk of rising inflation will force the Federal Reserve to maintain a restrictive policy or even consider raising interest rates.
Investors should closely monitor subsequent inflation data, oil price movements, and statements from other Federal Reserve officials. Goolsby's remarks once again reminded the market that, amid heightened geopolitical uncertainty, the Federal Reserve will prioritize managing inflation risks.
Editor's Summary
Chicago Fed President John Goolsby signaled caution, emphasizing that rate cuts this year would require significant progress in inflation, while the energy price shock triggered by the Iran war poses a major upside risk. With inflation now above target for five consecutive years and gasoline prices nearing $4 per gallon, the Fed's policy decisions are becoming increasingly complex.
Overall, the likelihood of the Federal Reserve maintaining interest rates unchanged in the short term has increased significantly, and the cooling of market expectations for easing will continue to affect global asset pricing.
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