Fed policymaker Goolsbee is adding more fuel to the inflation debate, explaining further why the Fed is becoming much less comfortable in sitting on the sidelines. His comments come from prepared remarks at the Official Monetary and Financial Institutions Forum in London:
The message seems to be relatively straightforward. That is if demand continues to run hot, then there is no doubt about what the next steps will be for the Fed in responding to that.
In adding to that, Goolsbee also makes it clear it is simply getting harder to look through supply shocks as they are being more persistent than what policymakers would normally expect.
That fits with last week’s Fed decision, in which policymakers unanimously raised interest rates by 25 bps to 3.75%-4.00%, while describing economic activity as solid, domestic spending as resilient, and inflation as still elevated.
But I think the key distinction for markets is that the Fed is no longer just worrying about an external energy shock.
If higher oil prices are being layered on top of more resilient consumption and broader domestic demand, the inflation story then becomes much harder to dismiss as being temporary. And that strengthens the case for keeping rates higher or potentially tightening further in this instance.
Just take note though that Goolsbee is not a voter on the FOMC this year and did not explicitly comment above last week's Fed decision in his remarks above.
But if there's one takeaway from his comments, it is that continued resilience would make the hawkish message increasingly difficult to ignore.
This article was written by Justin Low at investinglive.com.
Source: Investing Live - Central Bank
