Goolsbee says inflation is going the wrong way, reviving hawkish Fed tone

The Chicago Fed president's comment lands just as traders had pared the odds of an October rate hike and long-dated yields had begun to retreat.

Federal Reserve Bank of Chicago President Austan Goolsbee said inflation is moving in the wrong direction and has stalled, a comment that echoes the hawkish line he and Fed Governor Michael Barr took in late September, when both argued the central bank should tolerate market pain to bring inflation back to 2%.

The remark comes a day after traders had pushed the odds of an October rate hike down to 50-50 from 70%, following comments from New York Fed President John Williams. On Thursday, Fed Vice Chair Philip Jefferson and Williams both signaled no urgency on further hikes after weaker jobless claims data, while Fed Governor Lorie Logan said more hikes are still needed as inflation lingers. Minneapolis Fed President Neel Kashkari said the September hike already showed the Fed's resolve, and Richmond's Thomas Barkin, Boston's Susan Collins and Kansas City's Jeffrey Schmid backed that move without signaling what comes next.

Those comments had helped pull the 10-year Treasury yield back to 5.24% and the two-year Treasury yield to 4.79% on Thursday, retreating from a selloff that had briefly pushed the 10-year above 5.2%. Gold, as tracked by the GLD exchange-traded fund, rose 0.55% to $382.94 that day as the retreat in yields eased pressure on the metal.

Goolsbee's comment reopens the gap between that hawkish rhetoric and where markets had settled. By reviving the argument that progress on inflation has stalled just as yields had started to ease, it leaves upcoming economic data as the likely factor that decides whether long-dated Treasury yields keep falling or resume their climb.