Goolsbee says Fed not on track to hit 2% inflation target

Chicago Federal Reserve President Austan Goolsbee said Friday that inflation above the Fed's 2% target has spread beyond energy and tariff costs, with artificial intelligence infrastructure development driving prices higher through strong demand.

"Are we on a path back to 2%? My feeling is right now we are not and we got to deal with that," Goolsbee said on CNBC's Squawk Box. He added that conventional wisdom suggests doing everything possible to prevent demand overheating, with upcoming inflation data determining whether the Fed needs a faster pace of rate increases.

Goolsbee noted that inflation has moved into categories where prices are not being driven by energy. The data center buildout is pushing up prices, he said, adding that inflation is rising and proving far more persistent than expected when it was just a matter of supply shocks.

Services inflation and rising health care costs do not appear likely to change quickly, Goolsbee said. He cautioned about assessing labor market impact on inflation, noting that wages are a lagging indicator of price pressures.

The Fed "definitely has work to do" to maintain its credibility, Goolsbee said. He added that the central bank cannot look through inflation if demand is overheating.

Even if oil prices drop rapidly, refining capacity remains "problematic" and will keep diesel and jet fuel prices elevated, Goolsbee said.

To the extent data suggest inflation is getting worse, it would make the Fed more aggressive, he said.