OMFIF Event: Monetary Policy in an Uncertain World
SPEECH DIGEST
HAWKISH medium confidence · 8.6k characters readAustan Goolsbee used an OMFIF speech in London to argue the Fed should stop reflexively "looking through" supply shocks when they prove persistent. He frames persistent cost shocks as incompatible with the 2% target and says the Fed must be willing to raise rates to close the supply-demand gap, accepting output and employment below target as the cost. On the current US outlook he flags services inflation and AI data center construction as possible demand overheating, and notes forecasters have pushed the projected inflation peak out repeatedly, now into 2027.
What’s new: A speech prints live, so unlike FOMC minutes there is no three-week staleness discount: the content lands as it is delivered. The genuinely new element is the framework itself: an argument that persistent supply shocks should NOT be looked through, with the operational implication that the Fed may need to raise rates to narrow a supply-driven gap. On the data, the fresh claim is the repeated pushback of the inflation peak, now projected into 2027, plus the identification of services inflation and AI data center construction as potential demand overheating. There is no explicit call on the next meeting, no vote language, and no numeric policy path.
KEY FINDINGS
- Persistent supply shocks should not be looked through: "Looking through won't work," and the presumption is that big shocks last longer than initially thought. Signals a higher policy path than a passive look-through framework implies, which is hawkish for the front end.
- "The only way to bring inflation down is to raise rates and narrow the gap between supply and demand," accepting employment below target and output below potential. Confirms a willingness to trade employment for price stability, reinforcing higher-for-longer.
- Forecasters have pushed the projected inflation peak from Q4 2025 to Q1, Q2, Q3, Q4 2026 and now 2027: "That's not a comforting pattern." Explicitly undercuts the transitory case that justifies looking through, supporting a restrictive stance.
- Elevated service-sector inflation and possible spillover from AI data center construction into aggregate demand are flagged as overheating risks where "there is no ambiguity about how the Fed needs to respond." Names the data that would justify a hike, giving the market a specific hawkish trigger to monitor.
- The response to a persistent supply shock "may not need to be as large as it would be if the inflation were coming from demand overheating," but "won't be painless either." Caps the hawkish read: a supply-driven response is sized smaller than a demand-driven one, limiting how far the front end should reprice.
FROM THE DOCUMENT
My argument is that in this new environment, there are some supply shocks that central banks should not simply look through—namely, the persistent ones.
My presumption—especially for big shocks—is that they will end up lasting longer than we initially think.
On September 21, Chicago Fed President and CEO Austan Goolsbee will speak in London at an Official Monetary and Financial Institutions Forum event, In Conversation with Austan Goolsbee: Monetary Policy in an Uncertain World. Beginning at 5:30 am CT, the event, moderated by OMFIF Chairman David Marsh, will livestream on this webpage.
On September 21, Chicago Fed President and CEO Austan Goolsbee spoke in London at an Official Monetary and Financial Institutions Forum event, titled In Conversation with Austan Goolsbee: Monetary Policy in an Uncertain World. The discussion was moderated by OMFIF Chairman David Marsh. Normally we think of the central banking challenge of economic stabilization and the business cycle as being about fluctuations in demand. But over the last several years we have lived through a repeated series of supply shocks that have exposed the limits of that thinking and forced new consideration of how central banks should handle supply-side disruptions. Since the experience of the 1970s, the oft-stated intuition has been that central banks should “look through” supply shocks and only respond if they start to have secondary effects on other industries or begin unanchoring inflation expectations.