Federal Reserve Governor Lisa Cook indicated on Wednesday that the primary risk facing the U.S. economy has shifted from the labor market to inflation, with persistent price pressures becoming a central focus for the central bank. She emphasized that if clear signs of cooling inflation are not seen going forward, the Fed is prepared to act to ensure inflation returns to its 2% target.
Speaking at an event in Washington, Cook stated, "If we do not see continued progress on inflation in the near term, I am prepared to take action. I am steadfastly committed to achieving the Federal Reserve's inflation goal." Her remarks came as the latest U.S. Consumer Price Index for June recorded its first month-over-month decline in six years.
However, Cook pointed out that, considering other economic data released this week, inflation as measured by the Fed's preferred gauge remains nearly two percentage points above the 2% target. Last month, the Fed held the federal funds rate target range steady at 3.50% to 3.75% for the fourth consecutive meeting. Yet, the latest economic projections show that about half of Federal Open Market Committee officials anticipate at least one more rate hike this year.
With inflation having exceeded the target for five consecutive years, a growing number of Fed officials have begun expressing concern about its persistence. Earlier that day, Fed Chair Wash reiterated during a congressional hearing the commitment to restoring price stability, while downplaying the view that artificial intelligence investments would drive long-term inflation higher. Cook, however, adopted a more cautious stance on this matter.
She noted that compared to a year ago, the labor market has stabilized while inflation risks have increased significantly, leading to a shift in the Fed's policy focus. "In fact, I believe the risks to the labor market are lower than they were a year ago. So, the risks on the employment side have diminished, and the balance of policy risks has tilted more toward the inflation goal," Cook said.
Cook suggested that sustained investment in AI infrastructure, along with supply chain shocks from tariff policies and the Middle East situation, could be significant factors keeping inflation elevated for an extended period. She pointed out that while Middle East tensions drove up energy prices earlier this year, the recent sustained rise in goods prices indicates that the current inflationary rebound is not solely due to energy costs.
Despite this, Cook stated that medium- to long-term inflation expectations remain broadly stable overall, suggesting public confidence in the Fed's ability to control inflation. However, she warned against complacency. "The public's confidence in the Fed is encouraging, but that does not mean we can let our guard down. There is a risk that past persistent high inflation could further fuel future inflation," she cautioned.
During a subsequent question-and-answer session, Cook indicated that current Fed monetary policy remains somewhat restrictive for the economy, but policymakers still have ample time to observe subsequent economic data before deciding on any policy adjustments. She emphasized that the inflation data released this week reflects only one month and cannot be used to establish a trend. "One month's data does not make a trend, so we must continue to monitor the data closely going forward," Cook concluded.
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