Federal Reserve voting committee warned: rising inflation expectations will become a "stumbling block to rate cuts"

Chicago Fed President and FOMC voter Goolsbee warned that there are signs that investors in the U.S. bond market are starting to anticipate higher inflation, which would be a "major danger signal" that could disrupt rate setters' plans for rate cuts.

In the week before Goolsbee made the above remarks, a closely watched University of Michigan survey showed that long-term inflation expectations for U.S. households reached their highest level since 1993. Goolsbee said: "If you see market-based long-term inflation expectations changing as they have in the past two months, I would consider this a major danger signal that needs to be highly monitored." The five-year forward rate is currently at 2.2%, while the University of Michigan survey shows that consumers expect long-term inflation to be at 3.9%.

Goolsbee said that if investors' expectations start to converge with those of U.S. households, the Fed will have to take action: "You almost have to deal with this issue in any scenario." he said.