Chicago Fed Chief: PCE Index Inflation Likely Lower Than CPI, Tariffs Raise Caution
Chicago Federal Reserve President Austan Goolsbee anticipates a less concerning inflation reading in the Personal Consumption Expenditures (PCE) Index, which the Fed uses for its 2% target.
Despite a 0.5% month-over-month increase in the Consumer Price Index (CPI) in January, Goolsbee expects the PCE index, due out next week, to show a smaller increase. "The PCE number... is probably going to still be not great, but it's not (going to be) as sobering as the CPI number," he stated.
While progress has been made in lowering inflation from 2022 highs, Goolsbee highlights the impact of economic uncertainty and evolving policies on inflation. "Before... uncertainties from policy and geopolitics... the overall (inflation) looked pretty good to me," he explained.
Goolsbee expresses concern over potential supply disruptions caused by large-scale tariffs proposed by the Trump administration. While tariffs imposed in the past had limited impact due to their narrow scope and exemptions, Goolsbee emphasizes the potential for broad-based and higher tariffs to aggravate inflation, similar to the supply shock experienced during the COVID-19 pandemic.
The potential impact of tariffs depends on the scope and magnitude, Goolsbee noted. "The more it looks like a COVID-sized shock, the more nervous you should be about that."