WASHINGTON: Rising productivity won’t necessarily lower inflation and could actually increase it if businesses and households anticipate future gains and begin to incr­ease spending, leading to higher prices and the possible need for tighter monetary policy, Chicago Federal Reserve Presi­dent Austan Goolsbee said on Wednesday.

In comments that foreshadow a coming debate with incoming Fed Chair Kevin Warsh, who has argued for the disinflationary impact of higher productivity, Goolsbee said that while the lower inflation argument seems intuitive as companies learn to make more with less, “the implications for what that would mean for interest rates” remain an active area of debate.

“If people expect an increase in productivity coming in the future ... it can change their behavior today,” as households, companies and shareholders anticipate rising income and wealth, Goolsbee said in comments prepared for delivery at a Milken Institute conference in Los Angeles.

“It can lead to increased spending and potentially overheat the economy before the productivity boom has actually arrived.

In that case, the fundamentals suggest rates would need to rise.” “It’s critical we be careful about activity driven by assumptions of future growth,” he said.

“The bigger the hype, the more rates would need to rise to prevent overheating.” Former Fed Chair Alan Greenspan argued against rate hikes in the mid-1990s on the grounds that productivity was improving and would ease price pressures, even if not widely anticipated.

Published in Dawn, May 7th, 2026