Chicago Fed President Austan Goolsbee has identified inflation above the Federal Reserve’s 2% target as the main U.S. economic problem while officials debate whether to raise rates from 3.50%–3.75%.
Summary
- Goolsbee called inflation the economy’s biggest problem, while describing the labor market as stable but weak.
- The Fed held rates at 3.50%–3.75% in July, with three officials backing a 25-basis-point increase.
- Economists expect July headline and core CPI to slow to 3.4% and 2.5%, respectively.
- Bitcoin fell into the low-$63,000 range as oil prices and inflation concerns reduced demand for risk assets.
Why Goolsbee sees inflation as the main challenge
Wired released Goolsbee’s interview on Aug. 11 after recording the discussion on June 22, with the Chicago Fed president arguing that fast-rising prices remain more damaging than current labor-market conditions.
“The biggest problem facing our economy right now is not the collapse of industry and the collapse of jobs; it’s that the prices have been rising too fast,” Goolsbee said. “We got an inflation problem and people hate inflation.”
While assessing employment, Goolsbee pointed to the unemployment rate, hiring and layoffs as the three main indicators shaping his view. He described the labor market as “stable, without being good,” indicating that conditions have weakened without showing the type of collapse that would make employment the central bank’s most urgent concern.
The Chicago Fed president did not provide guidance on whether he would support an increase at the Federal Open Market Committee’s Sept. 15–16 meeting. Goolsbee does not vote on monetary policy this year, although his comments add to the public debate among regional Fed presidents and members of the Board of Governors.
Inflation has remained above the central bank’s 2% goal despite periods of slower monthly price growth. The June consumer price index fell 0.4% from May, while annual inflation eased to 3.5% from 4.2%, according to the Bureau of Labor Statistics. Core CPI, which removes food and energy, was unchanged for the month and increased 2.6% from a year earlier.
Fed rate hike support has divided policymakers
At its July 28–29 meeting, the Federal Reserve maintained rates within a target range of 3.50%–3.75% by a 9–3 vote. Beth Hammack, Neel Kashkari, and Lorie Logan dissented because they preferred a 25-basis-point increase.
Minneapolis Fed President Kashkari has since argued that the central bank should begin raising rates as elevated inflation and the U.S.-Iran conflict complicate the policy outlook. The closure of the Strait of Hormuz has restricted a route that normally carries about one-fifth of global oil and gas supplies, according to Reuters.
Kashkari said uncertainty around the conflict made it difficult for the Fed to promise rate cuts or provide firm guidance. During an earlier CBS interview, he said policymakers “might have to go the other direction” if the war and resulting energy shock kept inflation elevated.
The Minneapolis Fed president also warned that there was no assurance that shipping through Hormuz would return to normal quickly. Higher oil costs can reach American households through gasoline prices, while businesses may face increased transport and production expenses.
St. Louis Fed President Alberto Musalem has also backed tighter policy, arguing that an early and gradual response would be less disruptive than waiting until inflation becomes more firmly established. San Francisco Fed President Mary Daly supported the July decision to leave rates unchanged, saying the central bank needed more evidence to determine whether the energy-driven increase would prove temporary or persistent.
Meanwhile, Goolsbee’s comments place him closer to the Fed’s inflation-focused camp without confirming how he would approach the next policy decision. His description of employment as stable separates current conditions from a severe labor downturn, even though the latest payroll figures showed a notable loss of momentum.
Weak jobs data has reduced September hike expectations
The U.S. economy lost 23,000 nonfarm payroll positions in July, while the unemployment rate remained near 4.1%, according to the Bureau of Labor Statistics. May and June payroll estimates were also reduced by a combined 103,000 jobs, while average hourly earnings increased 3.2% from a year earlier.
As crypto.news reported in its July payroll coverage, Bitcoin initially gained almost 2% and traded near $65,200 after the report reduced expectations of an immediate rate increase. Prediction-market traders raised the probability that the Fed would leave rates unchanged in September to 66%, up from about 50% one day earlier.
Expectations have continued to vary across contracts. The supplied prediction-market data placed the probability of no September change at 59%, while a separate contract gave a rate increase before the end of 2026 the same probability. Since the contracts cover different time periods, the figures do not represent conflicting outcomes for the same FOMC meeting.
Iggy Ioppe, chief investment officer at Theo, previously told crypto.news that one weak employment report would not necessarily overcome the inflation concerns created by energy prices and shipping disruptions.
“A softer jobs number does not automatically close that gap,” Ioppe said. “Risk assets, including Bitcoin, retain the medium-term support that comes from continued inaction, but the same geopolitical energy risk that is keeping the Fed cautious also continues to limit upside.”
For U.S. crypto investors, the rate decision can affect Treasury yields, the dollar and demand for assets that do not pay interest. Higher rates raise the returns available from lower-risk government debt, while tighter financial conditions can reduce the amount of capital investors allocate to Bitcoin and other cryptocurrencies.
July CPI has become the next test for Bitcoin
The Bureau of Labor Statistics is scheduled to release July CPI at 8:30 a.m. ET on Aug. 12. Economists surveyed by Reuters expect headline inflation to slow from 3.5% to 3.4% annually, with core inflation easing from 2.6% to 2.5%.
A recent CPI preview reported that expectations for a September rate increase had fallen to 44% from 67% one week earlier after the weak payroll numbers. The U.S. 10-year Treasury yield was trading near 4.66%, while Bitcoin had briefly moved above $65,000 before failing to establish the level as support.
Selling returned on Aug. 11 as crude oil rose and negotiations over Hormuz lost momentum. Bitcoin dropped about 2% to $63,780 before attempting an intraday recovery, while Ether and XRP also came under pressure. U.S. spot Bitcoin ETFs recorded $144.6 million in net withdrawals on Aug. 10, ending five consecutive sessions of inflows, according to SoSoValue data cited in Bitcoin’s latest decline.
Iranian official Mohsen Rezaei said the Strait of Hormuz would remain closed unless the United States met Tehran’s conditions, which included ending the war and unfreezing Iranian assets held abroad. His statement followed comments from Pakistan’s defense minister that Washington and Tehran were close to an arrangement despite fresh attacks on maritime traffic.
