Fed hike odds hit 40% as Goolsbee flags CPI risk

Chicago Fed President Austan Goolsbee called Wednesday's CPI report “discouraging” and said more bad inflation readings would be unacceptable, as rates markets priced a 40% chance of a Federal Reserve hike later this month.

Goolsbee said that if current inflation levels hold, policy would need to address them. He flagged services inflation as a concern and said the Fed should focus on the trend in inflation rather than one report.

Services prices test Fed patience

Goolsbee said evidence is building that inflation has not been transitory during continued shocks. He said the economy has work to do on inflation and that there is no ambiguity for the Fed when growth is solid and inflation is high.

The Chicago Fed chief said consumers, GDP and investment levels have been strong. He said contacts are discussing costs and prices, not recession, and added that the Fed must prevent overheating from building.

Goolsbee also pointed to artificial intelligence investment as a risk to monitor. He said AI hype could drive more technology-sector spending and risk overheating, while a slowdown in AI investment would not necessarily mean a recession.

Goolsbee said he does not want to tie his hands on the policy outlook and is not a fan of telegraphing Fed moves before meetings. The next scheduled catalyst is remarks from Kevin Warsh late Thursday, Oct. 15, before the Fed enters its blackout period on Saturday, Oct. 17.