Chicago Federal Reserve President Austan Goolsbee said Monday he is increasingly focused on inflation risks over labor market weakness, even as geopolitical tensions show tentative signs of easing.

Speaking to CNBC, Goolsbee described the current policy environment as highly uncertain, coming shortly after President Donald Trump announced progress in negotiations with Iran, including a temporary pause in attacks on energy infrastructure.

“The most important thing is to figure out the through line of what is happening,” Goolsbee said. “What makes this a fraught but intense moment is nobody can tell us what is going to happen on the ground in the conflict in the Middle East, and how long that lasts.”

Goolsbee noted that while Federal Open Market Committee officials broadly still anticipate rate cuts ahead, his own outlook will hinge on clear evidence that inflation is moving sustainably toward the Fed’s 2% target.

He warned policymakers against underestimating price pressures again, cautioning against “a repeat of the team-transitory mistake” that marked the Fed’s early response to inflation in 2021.

“I remain fairly optimistic that by the end of ’26 rates could go down, but I wanted to see proof that we’re back on an inflation headed to 2%. This [war] definitely throws a wrench into the plans. We do need to see progress,” he said.

Goolsbee previously dissented against a rate cut in December but supported holding rates steady at the January and March FOMC meetings. While he is not a voting member this year, he is set to rotate back into a voting role next year.

Markets reacted sharply to the latest developments. Following Monday’s war-related news, traders increased expectations for a potential rate hike by year-end, even as they continue to price in a rate cut in 2027.

Stocks surged on the headlines, while oil prices fell, underscoring the volatility tied to shifting geopolitical and monetary policy expectations.