Austan Goolsbee stood in front of a room in London this morning and said the part the Fed usually hedges around: the inflation problem might not be about tariffs anymore.
The Chicago Fed president's comments landed hours before the US open, and they line up with something the futures market has already been doing all week: pushing up the odds of another rate hike before Halloween.
What did Goolsbee say about inflation today?
Speaking today at an OMFIF event in London, Chicago Fed President Austan Goolsbee said supply shocks from tariffs and energy prices have proven more persistent than forecasters expected, but that strong demand, partly fueled by AI-related capital spending, is now adding to the pressure as well. "If demand overheats, there is no ambiguity about how the Fed needs to respond," he said, according to Reuters.
Why does he think demand is now part of the problem?
Goolsbee pointed to AI investment "spilling out of its own lane" and pushing output beyond what the economy can absorb. He noted forecasters have pushed back their inflation-peak calls several times this year, calling that pattern "not comforting." He is not a voting FOMC member this year, so the comments are a read on his thinking, not a vote.
The data itself is more mixed than his tone suggests. Headline CPI held at 3.4% year over year in August, unchanged from July, while core inflation actually cooled to 2.4% from 2.5%. Both readings sit well above the Fed's 2% target, which is Goolsbee's real point: the level is the problem, not just the direction.
What are markets now pricing for the October 28 meeting?
Fed funds futures tracked by CME FedWatch have repriced hawkish this week, with the odds of another quarter-point hike at the October 28 meeting sitting close to 58%. That would take the target range to 4.00%-4.25%, a second consecutive hike. Odds for the meeting after that, December 9, are running close to a coin flip between holding steady and hiking again.
A move from "probably done hiking" to "58% odds of one more" in the space of a week is a real shift, not noise. It means Goolsbee's speech landed on an audience that was already leaning his way.
What happened at the Fed's last meeting?
The FOMC raised its target range a quarter point to 3.75%-4.00% on September 16, voting 12-0. It was the first hike under new Chair Kevin Warsh, who took office in May after the closest Senate confirmation vote for a Fed chair in modern history, 54-45. Sixteen of eighteen officials penciled in at least one more hike this year in the updated projections released the same day.
That kind of near-unanimous dot plot from a brand-new chair is a signal in itself. Warsh isn't inheriting a committee split on direction, he's inheriting one that mostly agrees, which makes a data surprise the only thing likely to change the October outcome now.
What should traders watch the rest of this week?
AutoZone reports fiscal fourth-quarter earnings before Tuesday's open, the first real read on consumer spending health this week. A Trump-Xi summit in Washington on Wednesday adds a trade-policy variable that could move sentiment independent of anything the Fed does. Fed officials are scheduled to speak on multiple days this week, so October odds could move again before Friday.
None of this guarantees a hike. It means the bar for the Fed to hold steady just got a little higher, and the next print that matters is whichever one lands before the blackout period starts.
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