President of the Chicago Fed: Trump and Harris’ inflation arguments questionable

Chicago Federal Reserve Chairman Austan Goolsbee warned on Sunday against misrepresenting the inflationary impact of price increases and tariffs on businesses, factors that have become a central theme of the economic policy platforms of the Trump and Harris campaigns.

Goolsbee avoided commenting directly on the presidential campaign because the Fed is committed to remaining independent and politically neutral. But his comments come in an election cycle in which voters have consistently ranked the economy and the high cost of living as their top priorities.

As a result, both Vice President Kamala Harris and former President Donald Trump have made cost-cutting the driving force behind their economic policy proposals.

Harris has proposed a federal ban on “price gouging by companies in the food and grocery industry.” The Biden administration has repeatedly blamed stubbornly high prices on companies that have kept their prices artificially high even as their production costs have fallen.

Although Goolsbee declined to comment explicitly on the Harris campaign's proposals, he said the high prices could not be explained solely by corporate profit interests.

“The differences between price and cost trends can change significantly over the course of the economic cycle,” Goolsbee said on CBS's “Face the Nation.” “So I caution everyone not to jump to conclusions from a single observation about markups.”

Goolsbee also highlighted the inflationary impact of higher tariffs, one of the key pillars of Trump's economic plan.

“Tariffs raise prices,” he said. “A one-time cost increase will raise prices, but it is not a long-term inflationary issue.”

Trump has repeatedly announced that he will raise import tariffs across the board on all goods, including by setting a higher rate specifically on Chinese goods.

Economists have cited this harsh tariff proposal as one of the main reasons Trump's agenda could reignite inflation, but the Republican presidential candidate has flatly rejected that notion.

“A tariff is a tax on a foreign country. … It's a tax on a country that exploits us and steals our jobs, and it's a tax that doesn't affect our country,” Trump said at his rally in Pennsylvania on Saturday.

Goolsbee said tariffs do not necessarily lead to long-term inflation, but they do increase consumer prices in the short term by increasing producer costs.

“Whether you want to call it inflationary or not, it drives up costs and it drives up prices,” he said.

Inflation has cooled slightly in recent months after reaching sky-high levels in the summer of 2022. Last Wednesday, the annual inflation rate in the Consumer Price Index report hit its lowest level since March 2021.

But as Trump and Harris try to sell their economic policies on inflation-fearing voters, investors' eyes are on the Fed. Many are hoping the central bank will cut interest rates in September, especially amid growing fears of a recession.

The Fed is preparing for its annual meeting in Jackson Hole, Wyoming, next week, where markets will be waiting for signals of a rate cut.

Goolsbee, who is not currently a voting member of the Federal Open Market Committee, stressed that the Fed is still considering its interest rate decision.

“Anything is always possible – there is a possibility of a recession,” he said. “The latest GDP growth numbers were higher than expected, so that was a bright spot, but you always have to worry about all eventualities. That's the job of the central banker.”