Goolsbee warns productivity gains could fuel inflation through higher spending

Austan Goolsbee argued that faster productivity does not automatically translate into cooler inflation. If households and businesses expect the gains to arrive and spend ahead of them, he said, the result can be stronger demand, a hotter economy and more pressure on prices before any efficiency dividend shows up.

The Chicago Federal Reserve president delivered that message in prepared remarks released May 6, 2026, ahead of a panel at the Milken Institute Global Conference in Los Angeles. Goolsbee appeared with Benedict Evans, Sebastian Mallaby, Zoe Cruz and Catherine Wood, with James Mackintosh moderating. His central point was that the Federal Reserve’s response depends on whether productivity improvements are unexpected or already anticipated, because anticipation itself can pull borrowing, investment and consumption forward.

That distinction matters for rate expectations. The Fed had just held its policy rate in a 3.5% to 3.75% range on an 8-4 vote, the most divided decision since 1992. Goolsbee said recent inflation data was “bad news” and said the central bank needs assurance that inflation is returning to its 2% target. In his framing, the bigger the hype around a productivity boom, the more the Fed may need to lean against overheating if spending outruns supply.

The comments sharpen a debate that has been building inside and outside the central bank. In a February 28, 2025 speech at the Chicago Fed, Goolsbee said productivity growth since the end of 2022 had been “notably faster” than the trend seen in the 11 years before the pandemic. He also noted then that economists were still debating whether the surge would continue. That history matters because the Fed is now trying to judge whether artificial intelligence and other technologies are already showing up in stronger equity markets, wealth effects and broader demand.

The intellectual contrast is with Kevin Warsh, who has argued the opposite. In a November 2025 Wall Street Journal op-ed, Warsh said AI would be a “significant disinflationary force” and that productivity gains should lift real wages. Warsh, who served on the Federal Reserve Board from 2006 to 2011, was identified in October 2025 as one of the finalists to replace Jerome Powell when his term ends in May 2026. That split leaves markets with a harder question than the usual productivity story: whether AI will cool inflation through lower costs, or instead fuel it first by unleashing another round of spending.