Signs that investors in the US bond market are beginning to anticipate higher inflation would be a "significant red flag" that could derail rate-setters' plans to cut rates, the chairperson of the Chicago Fed and a member of the FOMC has warned. Mr. Goolsby's comments came a week after a closely watched University of Michigan poll showed US households' long-term inflation expectations hitting their highest level since 1993. "If you see market-based long-term inflation expectations starting to change as they have in the last two months, I would consider that a significant red flag to be very concerned about," Mr. Goolsby said. The five-year forward rate is currently 2.2 per cent, while the University of Michigan survey shows consumers expect long-term inflation at 3.9 per cent. Mr. Goolsby said the Fed would have to act if investor expectations started to converge with those of US households: "You have to deal with this almost in any case," he said.