Inflation fears 'somewhat overblown,' says former Obama economic advisor

  • Economist Austan Goolsbee is "a little" worried about inflation, but says it will take more than one month of data to make a case.
  • "The fear the costs are going to spiral out of control ... is still somewhat overblown or at least unproven," he says.

Economist Austan Goolsbee is "a little" worried about inflation and rising interest rates, but said it will take more than one month of data to make a case.

"If you don't see this for three straight months it's not yet a thing, on both on the wage side and the inflation side," said Goolsbee, who served as chairman of the Council of Economic Advisors under President Barack Obama.

"The fear the costs are going to spiral out of control ... is still somewhat overblown or at least unproven," he told CNBC's "Power Lunch" on Thursday.

Fears about inflation sparked the massive market sell-off last week when the Labor Department reported that average hourly earnings had increased more than expected in January. Adding fuel to those inflation concerns was the bigger-than-expected jump in consumer prices, reported Wednesday.

On Thursday, investors saw more evidence of inflation when the producer price index was released showing it had increased 0.4 percent last month, with core PPI — excluding volatile food and energy prices — also up 0.4 percent. The main PPI figure was above the 0.2 percent growth expectation of Wall Street economists.

The news sent Treasury yields to new highs on Thursday, with the 10-year benchmark touching a four-year high of 2.944 percent. Stocks, on the other hand, rose in choppy trading on Thursday after closing sharply higher on Wednesday.

While Goolsbee may worry "some" about the economy overheating in the next 12 to 18 months, he said the stimulus from the tax cut and spending deal actually isn't as big as it seems at first glance.

"History shows that tax cuts aimed at the high end tend to be saved, not spent," he said.

Plus, what corporations do with their tax savings is a big factor.

"It feels to me like they're much more likely to pay out the money in dividends or even use it on M&A as opposed to rapid expansion of capital investment, which is what it would take if you thought it was going to overheat," said Goolsbee.

Jeff Knight, global head of investment solutions for Columbia Threadneedle Investments, sees positive news for the economy in the rising Treasury yields. He believes they are a sign of economic healing, not distress.

Therefore, he still likes stocks.

"I don't think we're going to get obviously what we got last year, which was we go up every single month and it's a 20 percent year with no volatility," he told "Power Lunch."

"This year is a much less productive in terms of trajectory, with more volatility around it."

— CNBC's Jeff Cox, Fred Imbert and Tom Franck contributed to this report.