- Key insight: Federal Reserve Gov. Lisa Cook reiterated an earlier position that she is ready to raise interest rates, but added more insight into why she did not vote in favor of a hike at last week's FOMC meeting.
- Expert quote: "The longer inflation is above target, the more likely this scenario becomes. Thus, while we might be able to afford to wait for longer in a different environment, we do not have that luxury in this one." — Federal Reserve Gov. Lisa Cook.
- Forward look: Cook said she sees signs of disinflation in the three main drivers of price growth this year — tariffs, oil prices and AI spending — but is watching to see if those trends continue.
Federal Reserve Gov. Lisa Cook is ready for the central bank to increase interest rates, but only "if it becomes necessary to bring inflation down."
In a speech delivered to the Anchorage Economic Development Corp. in Anchorage, Alaska, Cook said inflation is too far above the Fed's long-stated 2% annual growth target. But despite this being her "long-held view," Cook voted with the majority during last week's Federal Open Market Committee meeting to keep the target range for the federal funds rate unchanged.
In her remarks, Cook explained that her decision to support no change came down to three factors: tariffs, oil prices and investment in artificial intelligence technologies. While each of these factors have inflationary potential and have contributed to overall inflation growth this year to a greater or lesser degree, she said she is still waiting for a clear signal that the resulting price shocks amount to a durable and secular increase in prices.
"For these three reasons, I felt it was appropriate not to change rates while we see how these factors evolve," Cook said. "If I do not see signs of continued disinflation soon, I am prepared to act."
This is the third speech
The speech comes on the heels of one of the more divisive FOMC decisions in recent memory, with three committee members voting against the majority. Cleveland Fed President
Kashkari, in his statement, said he sees high inflation as a durable trend, one that he would rather the FOMC move to address sooner and more gradually rather than waiting and risking falling behind the curve.
"To manage against the risk that high inflation could become entrenched, I would rather tighten policy incrementally as we gather more data on the path of inflation and employment," Kashkari wrote. "If inflation remains elevated, in my view, a potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary."
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Others on the committee have also come out in support of tightening monetary policy this week. Kansas City Fed President Jeffrey Schmid — a non-voting member of the FOMC this year — said
"Given the strength of demand and investment, I do not see the current stance of monetary policy as restrictive," Schmid said. "As such, I believe that bringing inflation down to the Fed's 2 percent objective will require tighter policy."
Cook's comments also come as markets and other Fed watchers try to discern the FOMC's policy framework and reaction function for incoming economic data. New Fed Chair Kevin Warsh's
For her part, Cook explained that she has reason to believe the three main shocks driving inflation could improve on their own without a Fed policy response. With respect to tariffs, Cook said those price pressures have largely been priced into goods and aren't driving new price growth anymore. Likewise, energy prices have driven inflation thus far this year, she said, but noted that some forecasts expect a decline in oil prices by the end of the year. And as for AI spending, she is optimistic that supply chain improvements and efficiency gains will cause these pricing pressures to ease.
But for all of those mitigating factors, Cook acknowledged that there is a high level of uncertainty around all three areas and they warrant close attention from the FOMC moving forward. She also noted that because inflation has been above the Fed's target for so long, there is an imperative to move sooner than later.
"With five years of above-target inflation, the risk grows that higher inflation may become entrenched in price- and wage-setting behavior, leading to persistence that would be much harder for us to attack," Cook said. "The longer inflation is above target, the more likely this scenario becomes. Thus, while we might be able to afford to wait for longer in a different environment, we do not have that luxury in this one."
