Fed's Goolsbee: We have an inflation problem in this country

What the desk is arguing

The desk frames this as a pivotal moment for the Federal Reserve, as Goolsbee's remarks signal that inflation is not merely a transient issue but a persistent challenge that could influence monetary policy decisions. The Chicago Fed President specifically pointed out that service inflation remains problematic, which is a key area of concern given its potential to sustain overall inflation levels.

Supporting this view, Goolsbee noted that since March 2021, CPI inflation has consistently exceeded the Fed's 2% target, peaking at 9.1% before recently easing to around 2.3%. However, the cumulative impact of this prolonged inflation period has left consumers and businesses grappling with higher price levels, indicating that the Fed's previous measures may not have been sufficient to fully address the inflation problem.

Where it sits in our coverage

Our consensus target for USD/CAD is 1.075, with a range from 1.04 to 1.12. Notably, jpmorgan has set a target of 1.10 for March 2026, while bofa holds a more conservative view with a target of 1.04 for the same tenor.

This view aligns with the broader market sentiment that acknowledges the Fed's challenges, though it sits at the upper bound of the consensus range. The desk's perspective suggests a more aggressive Fed response may be warranted, contrasting with some firms that anticipate a more gradual approach.

How other firms see it

Firms like jpmorgan and citi appear to be aligned with the desk's view, recognizing the need for a more assertive Fed in light of ongoing inflationary pressures. Conversely, bofa and hsbc express a more cautious stance, suggesting that the Fed may not need to act as aggressively as implied by Goolsbee's comments.

Traders should keep an eye on the USD/CAD pair, as its trajectory could reflect the Fed's evolving stance on inflation. Additionally, the relationship between energy prices and inflation metrics will be critical to monitor, especially given the recent volatility in oil prices.