GEOFF BENNETT: Inflation remained stubbornly high last month, adding to the financial strain on Americans already struggling with the high cost of living.

The latest Consumer Price Index shows prices rose four-tenths of a percent, driven largely by higher food and energy costs.

Housing costs also climbed three-tenths of a percent, accounting for roughly a third of the larger-than-expected monthly increase.

Economists now expect inflation to run at about 4 percent for the year, outpacing wage growth and further squeezing household budgets.

Let's turn now to Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago.

Welcome back to the "News Hour."

AUSTAN GOOLSBEE, President, Federal Reserve Bank of Chicago: Yes, thank you for having me again.

GEOFF BENNETT: So, today's inflation report came in hotter than many economists expected.

When you look at the numbers, what stands out to you?

AUSTAN GOOLSBEE: Well, it's another distressing report, borderline disturbing.

We have been hoping to get progress, not -- everyone understands that the war in the Middle East leads to higher energy prices, and we have been dealing with that.

But several of these things that have been driving up costs were supposed to have gone away by now.

So the impact of tariffs on goods prices was supposed to have faded by now.

It still continues.

And the -- perhaps the most troubling part is that services inflation, including health care and a bunch of things that people don't need reminders to know that inflation remains too high, services inflation is not coming down, is probably not mostly driven by oil prices or tariffs or things that might be transitory.

And so we have got a real inflation issue on our hands that has been developing, and we're going to have to deal with that.

GEOFF BENNETT: And you have got food and housing costs that continue to climb, and unlike other expenses, these aren't things that families can simply cut out of their budgets.

What does persistent inflation in these essentials mean for the Fed's ability to bring prices under control?

AUSTAN GOOLSBEE: Well, the Fed has a limited tool set, only has the interest rate, and it can try to cool off the economy to cool inflation.

Everywhere I go out here -- and the Chicago Fed's district is kind of heart of the Midwest -- it's on everyone's mind.

It's on business mind.

It's on nonprofits' minds.

It's on ordinary consumers' mind.

I got a farmer Downstate Illinois sent me a diesel pump, says prices are killing them, and it's cost-side-driven.

And now we're getting demand-side-driven component that's coming from the AI build-out, unfortunately, that everywhere you're going in the country, they're saying the costs of construction are high, the cost of computers, electrical equipment, computer chips, very high.

And it's because they attribute this excess demand, almost conventional stimulus, if you want to think of it that way, that's coming from the data center build-out of multitrillion dollars.

GEOFF BENNETT: I was going to ask you about the inflationary effects of the AI data center boom.

What can policymakers do realistically to ease those kinds of pressures?

AUSTAN GOOLSBEE: It depends which policymakers.

At the Fed, again, like I say, we just have a interest rate tool, but business investment does get affected by interest rates.

And you have seen, as interest rates have gone up, you have seen various players in that space respond.

That's all you can do.

This is -- if it transpires the way it has been going, that's just old-fashioned demand overheating from excess stimulus that's coming from massive hype about AI overloading the economy in the short run.

Now, up until now, this has mostly stayed in its lane in the directly affected and adjacent sectors to AI.My fear and my concern is that we're starting to see this drift out into just overall overheating prices of a whole bunch of things, including services, rising way too fast, far higher than our target rate of 2 percent inflation.

At the same time, the job market has been pretty steady and stable.

And the law gives the Fed two jobs, the so-called dual mandate, stabilize prices, maximize employment.

The employment side is doing pretty well.

The inflation side is not doing well, and we're going to have to come to terms with that if this inflation is going to prove persistent.

GEOFF BENNETT: And inflation has remained above the Fed's 2 percent target for nearly six years now.

Is there a concern that you have got businesses and consumers accepting high inflation as the new normal?

AUSTAN GOOLSBEE: Yes, that's a major concern.

If that's what happened, it'll be that much more painful to try to get rid of inflation if it kind of gets built into the expectations that everyone has about prices.

It doesn't have to be that way.

And the only thing I will say is, it is true we have been above the 2 percent target for almost six years, but that hasn't been flat and high over that time.

There were periods where we were making progress, and I thought we were headed back to 2 percent.

Now what we have been dealing with is a series of shocks, some from oil prices, some from tariffs, now some from the demand side, and those -- a lot of those things were supposed to go away.

And they might still go away and prove transitory, but whenever you start hearing the word transitory, your -- the hair on your neck should be standing up a little bit, because we went through that, where it was supposed to go away.

And we found out that, when you have major disruptions to the supply chain, those oftentimes end up being far more persistent than let's call it the theory says they're supposed to be.

GEOFF BENNETT: Yes.

Hey, Austan, I almost made it through this entire interview without asking you whether the Fed should raise or cut rates, which I know you always enjoy.

GEOFF BENNETT: But, look, we have got a minute left.

And I ask the question because your colleague Christopher Waller has said he's open to a larger-than-usual... AUSTAN GOOLSBEE: Right.

GEOFF BENNETT: ... half-point interest rate increase in December.

Given today's inflation numbers, what do you think?

AUSTAN GOOLSBEE: Well, look, you know I'm not a fan of being very specific and tying our hands at the next meeting or meetings in the future.

AUSTAN GOOLSBEE: I will say it's the -- literally the biggest table I have ever seen in my life in that room.

So everything is always on the table, and we must get inflation back down to target, and it's going the wrong way at this point.

GEOFF BENNETT: The ever diplomatic Austan Goolsbee, president of the Chicago Fed, always good to speak with you.

Thanks.

AUSTAN GOOLSBEE: Thanks for having me.