In an interview in Tokyo today, Chicago Federal Reserve President Austan Goolsbee expressed his dismay over the current economic direction.
He warned that the combination of energy shocks and stubborn inflation could drag the United States into stagflation, where unemployment and prices of goods rise simultaneously.
Ahead of the highly anticipated personal expenditure (PCE) inflation data due tonight, Goolsbee hinted that the threat of inflation has not yet subsided. He noted that services inflation in the US is still high and rising, and he even worries that inflation expectations could get out of hand if supply shocks from the war continue.
But despite the growing threat of inflation, Goolsbee sees the labor market as stable so far with low hiring and firing rates.
For him, the main focus now must be on enemy number one: inflation, which has failed to meet the central bank's target for five consecutive years.
In addition, the manufacturing sector has also voiced concerns about the fuel crisis that could disrupt their "just in time" production systems. If this conflict continues, manufacturers fear that the supply of components that depend on ship and truck logistics will be completely cut off, thus exacerbating price pressures in the market.
Amidst this chaos, attention has also been focused on Kevin Warsh, who will lead the Federal Reserve. Goolsbee described Warsh as a calm and serious person in making decisions, who is expected to be able to steer monetary policy wisely despite facing political pressure from President Trump.
For us here, the stagflation warning and tonight's PCE data mean that the cost of living may not fall anytime soon. If US inflation data remains hot, the dollar will strengthen, thus causing the price of imported goods in our country to continue to be expensive and requiring us to be more careful in managing our daily expenses.
