GEOFF BENNETT: Let's turn now to the impact of the war on the U.S.

and global economy.

Oil prices rose again today, hovering near $120 a barrel in recent weeks.

That's raising new questions for the Federal Reserve as it tries to navigate between inflation that remains too high and signs of a cooling job market.

Fed Chair Jerome Powell said last week, the Central Bank is taking a -- quote -- "wait-and-see approach."

For more on what this means for the economy, we are joined by Austan Goolsbee, president of the Federal Reserve Bank of Chicago.

Always good to see you.

AUSTAN GOOLSBEE, President, Federal Reserve Bank of Chicago: Yes, great to see you, Geoff.

GEOFF BENNETT: So let's start there.

How big a threat is this war to the economy?

You have got oil and gas spikes.

You have got shipping disruptions, attacks on energy, infrastructure.

What's it all mean?

AUSTAN GOOLSBEE: Well, part of it is, it's the direct effect that everybody can see.

The price of oil goes up, the price of gasoline is going to go up, and it's the most public price that we have in the economy.

So you're likely to see some downturns in consumer sentiment.

You're likely to see people expressing a lot of dissatisfaction with the cost of living and their expectations of what's going to happen to the inflation rate.

If you're old enough that you remember the 1970s, there's a kind of a pit of dread down in your stomach.

Uh-oh.

The price of oil goes up, isn't that going to lead us into a stagflationary recession?

It's probably worth remembering that a lot has changed in the economy since the 1970s.

So the U.S.

became a major energy producer, much more so than it was back then.

So there is -- there are some parts of the economy that go up when the price of oil goes up and you will probably see some investment in fracking and that sort of thing if this is sustained.

But the issues of the way the supply chain affects inflation are not really deniable.

And so that's a risk.

That's a -- and a worry for anybody who's in the Fed or anybody who's analyzing the national economy.

GEOFF BENNETT: And I want to come back to that.

But, beyond energy, we're seeing pressure on sectors like pharmaceuticals, fertilizer, even helium.

How broad is the economic impact?

AUSTAN GOOLSBEE: I think it's pretty broad, because energy is such a major component of the supply chain.

And out in the Chicago Fed, we're the most manufacturing-intensive of all the districts of the Fed, and especially so in autos.

And I talked to some major auto executives, and they said the thing to remember about manufacturing is that part of the shift to just-in-time manufacturing means that, at any given moment, virtually everything that's going to be put into a car has to be shipped from somewhere.

And a lot of it is not in a warehouse.

It's in a truck driving somewhere.

So, if the price of gasoline goes into Chicago, where it's $4.89 a gallon, if the price of gasoline is going to be like that, it's going to be more expensive in the supply chain and you're probably going to see some disruption.

So everybody's hoping that the impact that we have seen on oil prices proves temporary and that they can get back to a little more certainty.

But, as you say, the impact extends far beyond just the direct impact.

GEOFF BENNETT: Well, I read where you said that energy prices could stay elevated even if this war ends soon.

Is that right?

What accounts for it?

AUSTAN GOOLSBEE: That's possibly right.

And, well, what could account for it?

If there were damage to the energy infrastructure, if there were changes to the supply chain and what could come out of the Persian Gulf, those would be things that would affect the overall price of energy or price of oil, even if the conflict came to an end.

So that's why I think everybody who's looking at this has got to highlight there are direct effects and then there are spillover effects that are still to come that we're trying to figure out.

GEOFF BENNETT: So, how is the Fed seeing this, this real trade-off between fighting inflation and supporting growth?

AUSTAN GOOLSBEE: Well, I can't speak for the whole Fed.

I'm only supposed to speak for myself.

The entire Fed did think about the possibility of what we consider stagflationary shocks, that is, where both sides of the Fed's mandate are going wrong at the same time.

It has a dual mandate to maximize employment and stabilize prices.

Shocks to the energy market, which drive up the price of oil, can drive down employment while simultaneously driving up inflation.

And our thinking is, try to figure out which side is getting worse more than the other and how long it will last.

That's the -- that's kind of the philosophy of how to think about a stagflationary direction shock, but it's worth remembering, that's the worst thing that a Central Bank ever has to deal with, because there's not an obvious playbook for what you do.

If there's an overheating economy, there's an obvious playbook.

If there's a regular garden variety recession, again, there's an obvious playbook.

But things where both sides get worse at the same time, now it's more subtle, and that's a bad situation for the Central Bank.

GEOFF BENNETT: I know you love when journalists ask if there's going to be another rate cut.

(LAUGHTER) (CROSSTALK) GEOFF BENNETT: But, earlier this year, the expectation was one rate cut.

But, given the conflict, is that still realistic?

AUSTAN GOOLSBEE: I don't know.

It depends how long it lasts.

I have been, as you know, one of the more optimistic folks in the dot plot about the possibility for rate cuts this year, but I was uncomfortable with front-loading the rate cuts before we knew that inflation was going to go away.

I think there's an unfortunate aspect of this shock to energy prices that we're likely to see an impact driving up inflation at a time when we still haven't quite cleared out the previous shock that was driving up inflation, and that people were already amped up about the cost of living and affordability, and now we're probably going to take another bit of a hit on that.

For it to be realistic that rates would come down further this year, we have got to see progress in inflation, I think, and have some -- we have a 2 percent inflation target.

We got to have some comfort that we are on a path back to 2 percent inflation.

If what we're doing is encountering a period where inflation was already elevated, has been above the target for five years in a row, and now is going to start trending the wrong way with inflation going up more, we're going to have to really think through what the options are and how we're going to get through it.

GEOFF BENNETT: Austan Goolsbee, president of the Federal Reserve Bank of Chicago, thanks again for joining us.

AUSTAN GOOLSBEE: Thank you for having me, Geoff.