Chicago Federal Reserve President Austan Goolsbee warned Tuesday that April’s softer inflation reading may be misleading, calling it possibly the "last vestige" of pre-tariff pricing, with more substantial upward pressure likely to appear in the coming months.

Speaking during a moderated Q&A at the Corridor Business Journal's 2025 Mid-Year Economic Review in Cedar Rapids, Iowa, Goolsbee emphasized that inflation data has so far shown "surprisingly little direct impact" from tariffs. But he cautioned that this may not last.

"If it's going to affect prices in a significant way, you would expect there's a one-month lag," Goolsbee said. "So that one would start showing up very soon."

Inflation Snapshot Misleading?

April's personal consumption expenditures (PCE) price index showed a 2.1% year-over-year increase—close to the Fed’s 2% target.

Yet, Goolsbee said that number is backward-looking and likely underrepresents coming inflationary dynamics.

"What matters is what will the inflation rate be that's coming in."

He added, "We've had a couple of solid reports, inflation looks good. But these were the last reports before the tariffs."

Goldman Sachs echoed Goolsbee’s concerns in its latest inflation monitor. In a note shared Tuesday, the bank’s economist Jessica Rindels said the effect of new tariffs was modest in April, but the pressure is starting to surface.

"We expect tariffs to raise the effective tariff rate by 13 percentage points," Rindels said, projecting core PCE inflation will climb to 3.6% year-over-year by December 2025. Core CPI is forecast to hit 3.5%, up from April's 2.8%.

Most of that surge will likely come from goods categories highly dependent on imports, such as electronics, autos, and apparel. Meanwhile, services inflation—especially outside of housing—is expected to remain subdued for now.

Are Tariffs Truly Transitory?

Goolsbee raised doubts over the theoretical assumption that tariff-induced inflation is short-lived.

"In theory, if you put in a 10% tariff, you'd have 10% inflation for one year. But ‘transitory' is a bad word," he said, referencing the Fed's earlier misjudgment of COVID-era inflation. "I'm a little wary that the tariffs will have a transitory impact."

He described how business leaders in his district—home to the highest concentration of tariff-exposed states—have begun implementing price hikes in real-time.

"Last night at dinner with some CEOs here in Cedar Rapids, they described that in some cases, they just added a column to the spreadsheet—the tariff price," he said. "That implies a 100% pass-through."

Chicago Fed District Faces Disproportionate Exposure

Goolsbee highlighted that four of the seven most tariff-sensitive states—Iowa, Michigan, Indiana and Wisconsin—are in the Chicago Fed's jurisdiction. Those economies rely heavily on imported inputs and exports, especially in manufacturing and agriculture.

"There’s a lot of domestic production that's going to suffer," he said. "We'll have to figure out how to deal with that."

Despite his caution, Goolsbee still sees room for optimism on interest rates.

"I still think underneath all the tariff dirt in the air, rates can come down over 12–18 months," he said.

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