Chicago Federal Reserve President Austan Goolsbee called the latest inflation data borderline disturbing on Tuesday, as officials across the central bank signal they may need to raise interest rates more aggressively to combat persistent price growth. The consumer price index rose 0.4% on a seasonally adjusted basis in October, according to the Bureau of Labor Statistics, marking the third consecutive month of larger-than-expected increases. Goolsbee told PBS NewsHour that the country faces a genuine inflation problem that requires action. He expressed particular concern that price drivers like tariffs have not faded as he had hoped, and that continuously high inflation in services remains troubling.
Multiple Federal Reserve officials indicated on Tuesday that the central bank may need to move beyond its typical quarter-point rate increases. Fed Governor Christopher Waller said that a hot inflation report could push him toward advocating for a half-point increase in December, saying such a hike should be on the table if core CPI, which excludes volatile food and energy costs, reached around 0.3%. That threshold was met in the October data. Dallas Fed President Lorie Logan said she sees a need for two additional quarter-point increases and suggested the central bank might move more rapidly this winter than it has in the fall.
Not all officials took the same view. Philadelphia Fed President Anna Paulson acknowledged that inflation pressures remain present but said the central bank should not move too quickly, stating that gradual tightening seems appropriate for now. The Federal Reserve raised rates by a quarter point in September to a range of 3.75% to 4% and held them steady in October. Goolsbee expressed concern that after years of higher-than-preferred price growth, consumers and businesses may begin expecting inflation to remain elevated, which would make cooling prices much more painful.
Market expectations have shifted sharply following Tuesday's inflation report and Fed officials' comments. Fed funds futures are now unanimously expecting a rate hike at the central bank's December meeting, according to CME's FedWatch tool. The odds of a half-point hike stand at 15%, while odds of rates reaching 4.25% to 4.5% by January, through either one half-point increase or two quarter-point moves, are at 60%. Waller, Logan and Paulson are voting members of the rate-setting Federal Open Market Committee this year and will cast votes at December's final meeting. Goolsbee will become a voting member next year.
For American borrowers and savers, higher interest rates would increase borrowing costs for mortgages and loans while raising returns on savings accounts and certificates of deposit, depending on how quickly and by how much the Fed moves.