• Chicago Fed President Austan Goolsbee says inflation was already elevated before the recent energy shock, complicating the Fed's path.
  • He warns that energy-driven price increases risk becoming embedded in expectations, which could delay rate cuts.
  • Markets now see the Fed holding rates steady longer, with 2026 cuts uncertain if inflation persists.

Inflation Persists Across Multiple Drivers

Federal Reserve Bank of Chicago President Austan Goolsbee emphasized that the recent uptick in inflation cannot be attributed solely to rising energy costs, noting that price pressures were already running above target before the war-driven spike. In remarks to reporters on Thursday, Goolsbee stated, "Inflation was elevated before the recent energy shock, and we cannot assume it will fade on its own." The comment comes as fresh data shows both consumer and producer prices remain stubbornly high, with services and shelter components contributing alongside energy.

Goolsbee's assessment aligns with other Fed officials who view inflation as the primary risk to the economy, outweighing concerns about a softening labor market. "Our focus remains on returning inflation to 2%, and we will not pre-commit to a specific timeline for rate cuts," he added. The Fed's preferred inflation gauge, the core PCE deflator, has hovered around 2.8% for months, well above the target.

Energy Shocks Threaten to Embed Inflation

The central bank's concern is that sustained energy price increases could become entrenched in consumer and business expectations, leading to a self-reinforcing cycle of higher prices. Goolsbee warned, "If households start expecting higher inflation year after year, that will show up in wage negotiations and price-setting behavior." Recent data from the University of Michigan shows one-year inflation expectations have crept up to 3.3%, though longer-term expectations remain anchored near 2.9%.

Markets have taken note. The probability of a rate cut at the Fed's next meeting has fallen to below 10%, according to CME FedWatch. Traders now see the first cut possibly delayed until late 2026 if energy prices stay elevated. Yields on two-year Treasuries, sensitive to policy expectations, have risen to 4.15%, up 20 basis points this month.

A Data-Dependent Path Ahead

Goolsbee reiterated that the Fed remains data-dependent, meaning any easing will require clear evidence that inflation is on a sustained downward path. "We need to see months of improvement, not just a single reading," he said. The Chicago Fed chief also noted that while unemployment remains low at 3.7%, the central bank cannot afford to ease prematurely.

Critics argue that focusing too heavily on inflation risks suppressing economic growth, especially if energy shocks prove temporary. But Goolsbee countered, "The cost of not controlling inflation is far higher in the long run." The Fed's next policy meeting is scheduled for May 6-7, where updated economic projections will be released.

Correction: An earlier version of this article misstated the timing of the Chicago Fed president's remarks. The comments were made on April 10, 2026.