Fed President Austan Goolsbee has thrown up a major red flag — and it’s something we all need to pay attention to. 

Though inflation has been trending downwards, the specter of rising inflation expectations is looming, and could become a self-fulfilling prophecy. This is the crux of things as they stand: consumers are increasingly worried about future inflation. 

Surveys like the University of Michigan’s show that 12-month inflation expectations are elevated, and long-term expectations are also on the rise. This consumer pessimism, fueled in large part by concerns over unpredictable tariffs, once again draws stark contrast to the more moderate inflation forecasts coming from Wall Street.

Goolsbee’s concern is that if these gloomy consumer expectations start to seep into the market’s forecasts, we’re in trouble. If financial institutions and economists start baking these inflation expectations into their models, the Fed will be forced to take drastic action.

The danger is that rising inflation expectations can trigger a wage-price spiral. If people expect higher prices, they demand higher wages, which in turn pushes up the cost of goods and services, leading to even higher prices. It’s a vicious cycle, and one the Fed is desperate to avoid.

Fed Chair Jerome Powell has acknowledged rising near-term inflation expectations, attributing them in part to the tariffs, but he’s also emphasized that longer-term expectations remain anchored around the Fed’s 2% target — all of which could change rapidly.

The uncertainty surrounding upcoming policy decisions, particularly those tariffs, is already creating tension. Even Wall Street titans like Jamie Dimon, who have been relatively sanguine about inflation, are concerned about the growing uncertainty.

Goolsbee’s advice is to wait and see, though he acknowledges this approach has costs. The next few weeks, particularly leading up to April 2nd, are crucial — and that date, rumored and threatened to be a day of tariff announcements, is at the heart of a lot of indecision and stress just now.

Because the truth is that we’re in a holding pattern. The Fed is closely monitoring inflation expectations, and the markets are bracing for potential policy changes. The next few weeks are critical for determining the direction of the economy. Remain vigilant and stay prepared for potential volatility.