Chicago Fed President Austan Goolsbee says "strong demand" — ordinary Americans spending their own money — is now driving inflation, and there's "no ambiguity" the Fed will hammer the economy with more rate hikes to stop you from doing it.
After years of money printing and zero-interest-rate policy that inflated asset bubbles and consumer prices, the Federal Reserve's message to working Americans is blunt: the problem isn't what we did — it's what you're doing.
"If demand overheats, there is no ambiguity about how the Fed needs to respond," Goolsbee said in prepared remarks for a London forum, according to Reuters. He pointed to artificial intelligence investment potentially "spilling out of its own lane and raising aggregate output beyond what the economy can absorb."
Translation: you're buying too much, businesses are investing too much, and the Fed will make borrowing more expensive until you stop.
Inflation sits at an estimated 3.7% — nearly double the Fed's 2% target — and Goolsbee conceded that supply shocks from oil, tariffs, and commodity prices have proved more persistent than the central bank expected. "Forecasters have spent more than a year pushing back the date when inflation was supposed to peak and start falling," he said. "That's not a comforting pattern."
His solution: "The only way back is the hard way" — higher interest rates and the risk to growth and jobs that comes with slowing the economy. The Fed already raised its policy rate a quarter point last week, and Fed Chairman Kevin Warsh emphasized the strength of domestic spending and business investment as justification.
Notice what's missing from Goolsbee's diagnosis: any acknowledgment that the Fed's own unprecedented expansion of the money supply during the pandemic years — and its insistence that inflation would be "transitory" — laid the groundwork for the price spiral now eating into working-class paychecks. Reuters framed the story around "strong demand" and supply shocks; what got buried was the central bank's role in creating the conditions it now wants you to pay for.
The pattern isn't limited to Washington. Across the Atlantic, the Bank of England held rates at 3.75% this week, but three of nine Monetary Policy Committee members — including chief economist Huw Pill — voted to raise, Europe Says reported. Bank Governor Andrew Bailey said rate relief would require "an end of conflict in the Middle East" and energy prices returning to pre-conflict levels — conditions nowhere in sight. Meanwhile, the average two-year fixed mortgage rate in the UK hit 5.77%, the highest since May, and five-year rates reached 5.83%.
Working people on both sides of the Atlantic are paying more to borrow, more to eat, and more to heat their homes, while central bankers who fueled the fire now point fingers at demand — at you — as the culprit.
The question that won't go away: when the Fed finally "cools" the economy into recession, who gets laid off — and who walks away without consequence?
