Goolsbee says AI-driven inflation is 'problematic' and requires quick action

He noted that demand-driven inflation, unlike supply shocks, is persistent and difficult to control once it takes hold. Goolsbee emphasized the conventional economic wisdom that overheating demand requires decisive and swift action to prevent it from embedding into inflation expectations. He suggested that if inflation remains stubborn, the Fed must continue its rate-hiking path. However, he also indicated that if evidence emerges of oil shock inflation receding and progress is made, the Fed could return to a rate-cutting trajectory.

The Federal Reserve last raised its short-term policy rate by a quarter percentage point to a range of 3.75%-4.00% in its most recent meeting, the first increase in three years amid persistent inflation. Rate futures markets are anticipating no further increase at the upcoming October 27-28 meeting, but expect another quarter-point hike in December.