Chicago Fed President Austan Goolsbee is feeling better about inflation than he was a few months ago. He just is not ready to celebrate yet.
After a rough stretch where price increases ran hot, the last few months have finally shown the kind of slowdown the Fed has been waiting for. Goolsbee says he is encouraged, but he wants to see more before he is convinced the battle is over.
Goolsbee attributes the recent improvement to price shocks from tariffs and higher oil costs finally working their way through the economy. Those pressures have faded over the past two months, the data shows.
"Given, though, that we got five or six months going the wrong way, and the overall is way too high, I will say I'm encouraged by the last three months," he said.
The target remains the Fed's 2% inflation goal, and Goolsbee is not there yet. "If we get three, four months in a row like what we saw in June, I will be feeling much better that we are on path back to 2%," he added.
That caution comes from recent history. The last five years have shown how painful inflation can be once it gets going, and Goolsbee is not eager to repeat that.
Goolsbee's comments come as the Fed has kept interest rates unchanged while waiting for more evidence that inflation is moving sustainably toward its 2% target. The central bank's July decision reflected that stance.
Here is where things get interesting. At first glance, stronger productivity looks like an unqualified good, but Goolsbee cautions that rate cuts are not an automatic consequence.
The logic? Strong productivity could support big investments, like the massive spending on AI infrastructure. That kind of investment boom could overheat the economy, which would actually push against rate cuts.
"If the increase in productivity growth doesn't continue, that would make a huge difference to all the narratives about AI and productivity and what that means for monetary policy and for the economy," Goolsbee said.
So the same productivity numbers that might seem like a reason to ease up could actually be a reason to hold steady. It all depends on whether the trend lasts.
Goolsbee is also watching consumer spending. Retail sales in July fell by the most in over a year, which sounds concerning. But he noted that a single month does not make a trend. A sustained decline over a few months, though, would make him uneasy.
Meanwhile, the Fed is itself having conversations about how it works. Some officials want to change things, possibly reducing the number of annual meetings. The Fed currently meets eight times a year.
For now, Goolsbee backed the Fed's decision to keep interest rates unchanged at the July meeting. He described U.S. growth and the labor market as stable, with inflation as the main worry.
The takeaway? The Fed is in a waiting game. Inflation is heading in the right direction, but no one is ready to declare victory. Until then, patience remains the play.
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