The U.S. Treasury Secretary and the Chairman of the Chicago Federal Reserve had a public clash over the root causes of current inflation, reflecting the deepening policy differences between Washington and the Federal Reserve, and adding more uncertainty to the Fed's December interest rate meeting.

U.S. Treasury Secretary Scott Bessent (Bessent) called in an interview with CNBC on Friday for the Federal Reserve not to raise interest rates aggressively due to the "energy supply shock" triggered by the Iran war.

Chicago Fed Chairman Austan Goolsbee (Gulbsby) immediately responded in the same program, pointing out that inflation has spread to sectors such as services and healthcare, which have a low correlation with oil prices, and is driven by strong demand fueled by the construction of AI data centers. This cannot be explained merely by rising energy prices.

Goolsbee clearly states that the Federal Reserve 'has a lot of work to do' to rebuild policy credibility.

Recently, stronger-than-expected employment and inflation data have further strengthened the Fed's rationale for continuing to raise interest rates. Some officials have even begun discussing the possibility of an unconventional 50-basis-point rate hike at the meeting on December 8-9.

Bessent: Energy shocks drive inflation, Fed should not reverse the policy rashly

In an interview with CNBC, Bessent attributed the current inflation to the rise in oil prices caused by the war in Iran and criticized the policy stance of the Federal Reserve.

He stated that the overall economic fundamentals of the United States remain strong, and the current inflation data is essentially "noise." The Federal Reserve should not use this as a reason to raise interest rates significantly.

"The Federal Reserve should be looking to the future, rather than just staring at the rearview mirror," said Bessent. He also mentioned the Fed's interest rate cuts last year, stating that making a sharp reversal of policy direction under the impact of energy supply shocks "is not something I would do if I were in the Federal Reserve."

He also stated that he does not intend to directly interfere with the Federal Reserve's decisions, but rather hopes that they will "maintain an open mind."

This stance is in line with the overall approach of the Trump administration – government officials generally emphasize the inflation-driven nature of rising oil prices and hold a critical view of the Federal Reserve's response measures.

Gulbsby: Inflation has transcended the energy sector and is even more concerning.

Goolsbee expresses respect for the judgments of the Minister of Finance, but clearly puts forward different views.

He pointed out that the persistence and widespread nature of inflation have exceeded what can be explained by the impacts of energy and tariffs – inflation in the service sector, rising medical costs, and the overheated demand driven by the construction of AI data centers have all become independent factors contributing to rising prices.

"Tariff inflation and the impact of oil prices should have subsided by now, but they haven't," said Goolsbee. "What's more concerning is if demand is overheating and contributing to inflation." He emphasized that inflation in the service sector "will not disappear regardless of how oil prices change."

On the issue of inflation returning to the 2% target, Goolsbee stated bluntly: "My current judgment is that we are not yet on the right track, and we must face this reality." He mentioned that the upcoming inflation data will be a key factor in determining whether the Federal Reserve needs to accelerate its interest rate hike pace.

Research shows that the relationship between oil prices and inflation is more complex.

Although the Trump administration has mainly blamed inflation on oil prices, according to Reuters, relevant research is revealing another aspect of the impact of oil prices on the U.S. economy.

As the United States has become a net energy exporter, rising global oil prices not only bring cost pressures on the supply side but also transmit these effects within the economy through increased corporate profits and wage growth, creating a demand-side inflationary force that is independent of supply factors.

This means that the Federal Reserve will find it difficult to simply "get through" the current inflation in the same way it does with pure supply shocks.

Fed officials considered taking a wait-and-see approach to supply-driven inflation in the early stages of the Iran war, but as inflation continued to exceed targets, the stance in favor of raising interest rates gradually gained momentum.

December Meeting Outlook: Disputes over the Intensity of Interest Rate Hikes Intensify

Recent data is driving market expectations for a more aggressive interest rate hike path. Stronger-than-expected employment and inflation reports have led some Federal Reserve officials to begin discussing the possibility of raising interest rates by 50 basis points at the meeting on December 8-9, rather than the usual 25 basis points.

Goolsbee has not explicitly promised to raise interest rates, but the wording indicates a tightening of policy stance. "We have seen negative signs of widespread inflation for several months now," he said, "and in categories that are unrelated to oil prices and tariffs, progress remains stagnant, with some even worsening."

The recent public disagreements between government officials and the Federal Reserve will continue to increase external attention to the independence of the Fed's policies. The trends in inflation and employment data before the December interest rate meeting are expected to become the core variables that the market will focus on.