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Austan Goolsbee, president of the Federal Reserve Bank of Chicago, delivered a stark message to central bankers and financial officials gathered in London: the playbook for handling supply shocks no longer works.
Speaking at the Official Monetary and Financial Institutions Forum (OMFIF) on September 21, Goolsbee argued that disruptions from tariffs, lingering post-COVID supply chain damage, and oil prices hovering around $100 per barrel are producing inflation that sticks around far longer than traditional models predict. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index, sat at 3.7% year-over-year as of July 2026, nearly double the central bank’s 2% target.
The end of ‘looking through’ supply shocks
For decades, the standard central banking response to a supply shock was to wait it out. A hurricane disrupts refining capacity, oil spikes, gas prices jump, and then everything settles back down. The Fed’s job in those moments was to hold steady and let the shock dissipate on its own.
Goolsbee is saying that framework is broken. When supply shocks come in waves, from tariffs layered on top of pandemic-era bottlenecks layered on top of energy price surges, each individual disruption feeds into the next. The result is inflation that compounds rather than corrects.
The practical implication is uncomfortable: the Fed may need to actively raise interest rates in response to supply-driven inflation, even though higher rates don’t fix supply problems. They fix demand. Which means the medicine works by making people spend less, hire less, and grow less.
Demand-side pressure isn’t helping
Goolsbee flagged persistent inflation in the services sector as a particular concern. Services inflation tends to be stickier than goods inflation because it’s driven by wages, rents, and healthcare costs.
He also pointed to a less obvious source of demand pressure: the massive wave of investment in artificial intelligence infrastructure. Data center construction has surged as companies race to build out compute capacity, and that spending ripples through the economy in the form of increased demand for electricity, construction labor, and specialized equipment.
Goolsbee indicated that a single additional rate hike may not be enough if demand continues running hot. That language stands in some tension with recent comments from Fed Chair Kevin Warsh, who has been more cautious about signaling further tightening.
Inflation peak keeps getting pushed back
Perhaps the most telling detail in Goolsbee’s remarks was the shifting timeline for when inflation is expected to peak. Forecasters initially expected inflation to crest in late 2025. That estimate slid into 2026. Now many anticipate the peak won’t arrive until sometime in 2027.
Goolsbee made clear where he thinks the priority should fall: price stability first, even if that means accepting short-term economic pain, including higher unemployment.
What investors should be watching
Bond markets face the most direct impact. If the Fed signals that one more hike isn’t enough, yields on Treasuries could climb further, repricing fixed-income portfolios and tightening financial conditions for borrowers across the economy. Mortgage rates, corporate borrowing costs, and credit card interest rates all move in response.
With oil already at $100 per barrel and supply constraints showing no signs of easing, energy-related assets may continue to outperform. Real assets more broadly tend to hold their value during periods of persistent inflation, which is why institutional investors have been gradually increasing their allocations to commodities and real estate throughout 2026.
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