Fed’s Goolsbee warned energy shocks from the war complicate policy and may delay rate cuts, echoing Barr’s earlier message that inflation risks and oil prices support a higher-for-longer stance.
Summary:
- Fed’s Goolsbee warns energy shocks complicate policy outlook.
- Says there is no clear playbook for current conditions.
- Flags risks to both inflation and growth sides of mandate.
- Signals uncertainty over rate cuts, depends on war duration.
- Echoes Barr’s earlier “higher-for-longer” tone on inflation.
Chicago Fed President Austan Goolsbee signalled rising uncertainty around the policy outlook, warning that the current environment, driven in part by energy shocks linked to the Middle East conflict, presents a difficult challenge for central banks.
Speaking on PBS NewsHour, Goolsbee said energy-driven price shocks pose risks to both sides of the Federal Reserve’s dual mandate, complicating the trade-off between controlling inflation and supporting growth. “It’s a bad situation for a central bank,” he said, noting that policymakers are operating without a clear historical playbook for navigating the current mix of geopolitical risk and inflation pressures.
Goolsbee emphasised that the path for interest rates remains highly contingent on how the conflict evolves, particularly its impact on energy markets. He said it is not yet clear whether the Fed will be able to cut rates again, with the outlook dependent on both the duration of the war and the extent to which higher oil prices feed through into broader inflation.
“We have to see progress on inflation for it to be realistic to expect rates to come down this year,” he added, reinforcing the Fed’s data-dependent stance.
The remarks closely align with comments made earlier by Fed Governor Michael Barr, who also stressed that rates may need to remain on hold “for some time” given inflation remains above target and is being pushed higher by elevated oil prices. Barr similarly highlighted that while the labour market appears to be stabilising, policymakers would require clear evidence of sustained disinflation before considering rate cuts.
Together, the comments underscore a growing shift within the Fed toward a more cautious stance, as geopolitical developments increasingly feed into the inflation outlook. The combination of persistent price pressures and external shocks is reinforcing a “higher-for-longer” narrative, while also introducing uncertainty around whether further easing will be feasible in the near term.
For markets, the key takeaway is that energy-driven inflation risks are now firmly embedded in the Fed’s reaction function. As a result, rate expectations are likely to remain sensitive not only to economic data but also to developments in the Middle East conflict and their impact on oil prices.
This article was written by Eamonn Sheridan at investinglive.com.
