Federal Reserve Governor Lisa Cook stated on Wednesday that if upcoming inflation data does not show sustained improvement, she is prepared to support raising interest rates to reduce price pressures. Delivering a speech in Anchorage, Alaska, Cook emphasized that inflation remains too high, and at this stage, the risks to the inflation side of the dual mandate outweigh those to the employment side.
Cook noted that while June's inflation data showed some easing of price pressures, this improvement was largely driven by a significant drop in energy prices, cautioning that markets and policymakers should not rely too heavily on a single month’s data. She stressed that inflation is still well above the Fed's 2% target, and prolonged high inflation could increase the risk of inflation expectations becoming embedded in corporate pricing and wage-setting processes.
"If I don't see signs of a sustained cooling in inflation soon, I am prepared to act," Cook said. "With inflation above target for five consecutive years, the risk of it becoming entrenched in pricing and wage-setting behavior is rising, which would lead to more persistent inflation and make it harder to address." She added that the longer inflation remains above target, the greater this likelihood becomes.
Cook acknowledged that in other economic conditions, the Fed might have the luxury of waiting longer for data to shift, but "in the current environment, we don't have that luxury." She suggested that the weakening impact of tariffs, potential declines in oil prices, and some easing of pressures related to the AI boom could help reduce inflation and eliminate the need for tighter policy. However, she reiterated that her primary focus remains on bringing inflation back to the Fed's target.
"If you take away only one thing from this speech, I hope it's my unwavering commitment to restoring price stability," Cook said. "First and foremost, getting inflation back to target is essential to achieving the dual mandate Congress has given the Fed."
Cook was among the majority of Fed officials who voted to keep policy unchanged at last week's rate-setting meeting. The Fed voted 9-3 to hold the benchmark borrowing rate steady in the 3.5% to 3.75% range. She explained that the decision to pause was based on a desire to assess the impact of several factors on future inflation, including the fading effects of tariffs, potential energy supply shocks from the Iran conflict, and price pressures from AI infrastructure buildout. Cook believes the Fed needs more time to evaluate whether these factors could reignite price increases, but she stressed that if sustained inflation relief does not materialize, the policy committee may need to take stronger action.
According to the CME Group's FedWatch tool, markets currently expect the Fed to potentially adjust rates as early as September, though pricing is higher for an October move. Meanwhile, Minneapolis Fed President Neel Kashkari has also reiterated his support for rate hikes. Kashkari, one of the three Fed officials who dissented last week by voting for a rate increase, told CNBC on Wednesday that he still believes raising rates is necessary. As internal concerns over inflation risks intensify, divisions among policymakers over whether to return to tighter monetary policy are widening.
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