Austan Goolsbee Is Worried the Economy Is Overheating

In this episode of the Odd Lots podcast recorded at Jackson Hole on August 27, 2026, hosts Joe Weisenthal and Tracy Allaway interview Chicago Federal Reserve President Austan Goolsbee about current economic conditions and monetary policy challenges. The conversation centers on whether current Fed policy is restrictive, a question Goolsbee frames as dependent on the underlying inflation rate and the unobservable neutral rate (r-star). He acknowledges that AI's potential productivity effects could raise r-star over the long term, but emphasizes that productivity growth has actually been weak for six consecutive months, cautioning against premature conclusions about a new economic era.

Goolsbee expresses concern about recent inflation developments, noting that while tariffs and oil price shocks may explain some price pressures, services inflation persists without these easy explanations. He describes a scenario where temporary supply shocks keep getting cited quarter after quarter as the inflation solution, creating a credibility problem for the Fed. He is supportive of waiting for one or two more inflation readings before cutting rates further, but demands evidence that temporary factors are truly dissipating.

On AI specifically, Goolsbee notes that while the technology promises productivity gains, the current phase involves massive capital spending that is creating resource competition across sectors. He describes Midwest experiences where data centers are driving up land prices and creating construction labor shortages, suggesting the economy is approaching traditional overheating conditions through excess demand if this becomes aggregate rather than sectoral.

The discussion addresses the Fed's communication strategy and forward guidance. Goolsbee distinguishes between forward guidance (pre-committing to specific rate moves) and reaction function communication (explaining how the Fed views economic dynamics). He argues that explicit forward guidance can be counterproductive, but that describing the Fed's economic worldview and decision framework is valuable. He discusses his recent dissent against front-loading rate cuts, explaining he wanted evidence of persistent inflation decline before supporting multiple cuts simultaneously.

Goolsbee credits the Fed with deserving recognition for maintaining inflation expectations anchoring during the post-COVID surge, noting that break-even inflation rates stayed near target even as CPI approached 10%. He argues this prevented an unanchoring that would have made disinflation far more costly. However, he also acknowledges the Fed was slow to raise rates initially.

On new Fed Chair Kevin Warsh's approach, Goolsbee notes the atmosphere feels different with new leadership pursuing a rethink of communication practices and seeking more debate within the committee. He expresses openness to reconsidering tools like the dot plot and Summary of Economic Projections, which may have been designed for zero-bound conditions no longer relevant today. He declines to characterize Warsh's reaction function but indicates his own is heavily focused on inflation persistence as the key variable.