Fed’s Goolsbee Warns Against Front-Running Productivity Growth

Federal Reserve Bank of Chicago President Austan Goolsbee warned against reflexively lowering interest rates in response to faster productivity growth, as the phenomenon can sometimes drive up inflation.

In prepared remarks released Wednesday ahead of a panel discussion at the Milken Institute Global Conference, Goolsbee said the Fed’s reaction to faster productivity growth “depends heavily on whether the productivity growth happens unexpectedly or is anticipated to be coming in the future.”

Under the first scenario inflation is likely contained, allowing for lower rates, he said. In the latter, the extra investment and spending productivity growth can drive up inflation, requiring ...