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Fed's Paulson and Goolsbee: inflation remains a real challenge, more gradual hikes ahead

Two Fed officials struck a hawkish tone after the CPI data. Paulson backed further gradual rate hikes, while Goolsbee said all options remain on the table.

Published: 2 min read11 views
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Fed's Paulson and Goolsbee: inflation remains a real challenge, more gradual hikes ahead
Contents
  1. Anna Paulson: further gradual hikes are appropriate
  2. Austan Goolsbee: we face a real inflation challenge
  3. Why it matters for markets

A day after hotter-than-expected US inflation data, two Federal Reserve officials spoke hawkishly about the rate path. Their message was clear: the Fed's fight against inflation is not over.

Anna Paulson: further gradual hikes are appropriate

  • Gradual approach: Raising rates slowly has given policymakers time to assess the impact of their decisions and given the economy time to adjust.
  • Inflation: Risks to the inflation outlook remain elevated, and the CPI data show inflation is still a challenge. Underlying inflation is running in a 2.5% to 3% range.
  • Policy: The Fed still has "more work" to do to bring inflation down. Policy should stay somewhat restrictive, and given high inflation, further gradual rate increases are appropriate.
  • Economy: The economy has been more resilient than expected and the labor market remains solid. Measuring the effect of AI and energy on inflation is difficult.
  • She supported the Fed's recent rate actions and said the exact policy path depends on economic developments.

Austan Goolsbee: we face a real inflation challenge

  • CPI: Goolsbee said the CPI data were somewhat worrying on inflation. His biggest concern is that services inflation remains high.
  • Expectations: The main worry is inflation becoming embedded in expectations and price pressures broadening. "We are going to have to deal with this."
  • Drivers: Inflation is being driven by both cost and demand factors, and business spending is sensitive to interest rates.
  • Bottom line: The labor market is stable, all options remain on the table, and the Fed must bring inflation back to target.

Why it matters for markets

Their tone matches market pricing: a December hike is seen as almost certain, and a 50 bp move is getting more attention. A sustained hawkish tone usually supports the dollar and Treasury yields while weighing on gold and growth stocks.

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Sources: Remarks by Federal Reserve officials Anna Paulson and Austan Goolsbee

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