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2026-09-21 18:38:11
[Goursby: Demand May Drive Inflation, Policy Requires Vigilance] ⑴ The President of the Chicago Federal Reserve stated that US inflation may no longer be solely driven by tariffs and energy price shocks; strong demand is also pushing up inflation. ⑵ He pointed out that there is no ambiguity regarding how the Fed should respond if demand overheats. ⑶ He emphasized that the impact of supply shocks on inflation is becoming more persistent and must be considered when formulating monetary policy. ⑷ He mentioned that investment in artificial intelligence may spill over, causing total output to exceed the level the economy can absorb. ⑸ Theoretically, supply shocks have only temporary, one-off effects, but experience since the pandemic shows that such shocks are becoming more frequent and persistent. ⑹ He stated that forecasters have been delaying the peak and decline of inflation for over a year, which is not a reassuring pattern. ⑺ He said that evidence is needed to show that these shocks are indeed receding; otherwise, it is difficult to see a credible path back to 2% inflation, and even more difficult to justify continuing to ignore them. ⑻ The Fed's 2% target is still significantly lower than the latest estimated inflation level of approximately 3.7%, and recent improvements have been limited. (9) He believes that in this environment, the only way to return to the target is through the difficult means: raising interest rates and accepting the risks to growth and employment from an economic slowdown. (10) The Federal Reserve raised interest rates by 25 basis points last week, and Warsh emphasized the strength of domestic spending and business investment at the press conference.
