Federal Reserve's dovish major turns hawkish: inflation data is bad news, warning that PCE at 3.5% is too high

Chicago Federal Reserve President Goolsbee pointed out that with the March PCE index reaching 3.5% and widespread inflationary pressures in the service sector, the Fed must remain cautious about rate cuts until inflation clearly falls back to the 2% target.

Chicago Fed President Austan Goolsbee said on May 2nd on Fox News’ “The Journal Editorial Report” that the inflation data released last week “is bad news for the Fed,” and that the Fed must be cautious about rate cuts before inflation clearly declines. CNBC quoted Goolsbee interpreting: “We need some kind of assurance, confirmation that we are returning to the 2% inflation target.” Previously, the March year-over-year PCE price index was 3.5%, exceeding the Fed’s inflation target by 1.5 percentage points.

Goolsbee states: Inflation data composition “looks bad,” not only affected by war

Goolsbee pointed out that the key concern with this inflation data is its composition: rising inflation is not only seen in sectors affected by the U.S.-Iran war and oil prices, but also in the service industry, which is roughly insulated from tariffs and energy prices. This indicates that inflationary pressures are broader and more structurally entrenched than just external shocks.

He also expressed that his concerns about inflation have intensified over the past few weeks as oil prices have risen. Goolsbee’s stance was originally seen as dovish (favoring rate cuts), but his recent comments send a clear signal of a more hawkish attitude to the market.

PCE 3.5% too high: inflation target further out of reach

The Fed’s preferred core inflation indicator, the PCE price index, rose 3.5% year-over-year in March, significantly exceeding the Fed’s long-term 2% target. Goolsbee has not publicly ruled out further rate cuts but emphasized that rate cuts must wait until inflation clearly declines; otherwise, monetary policy must remain “cautious.”

This stance aligns with the “diverging opinions” atmosphere at the end of the April FOMC meeting—committee members have clear differences on the persistence of inflation and the timing of rate cuts. As a voting member, Goolsbee’s shift in attitude has a substantial impact on the FOMC’s policy direction after May.

Follow-up observations: April PCE data in May, FOMC meeting in June

The next point of observation is the April PCE price index released at the end of May—if it remains at 3.5% or higher, the Fed’s rate cut schedule could be further delayed. Another point to watch is the updated dot plot from the June FOMC meeting, to see if it reflects a downward revision in the number of rate cuts expected in 2026.

• This article is reprinted with permission from: “Chain News”
• Original title: “Fed Goolsbee: Inflation Data Is ‘Bad News’, Warning PCE 3.5% Is Too High”
• Original author: Elponcrab