Federal Reserve Governor Lisa Cook stated that the risk of persistently high inflation now exceeds the risk of a weakening labor market, as investment in artificial intelligence and recent supply shocks boost price pressures.
Speaking at an event in Washington on Wednesday, Cook said:
"If we don't see signs of inflation declining in the near term, I am prepared to take action. I am fully committed to achieving our inflation target, and this commitment is unwavering."
Notably, Tuesday's U.S. June consumer price report showed the first month-over-month price decline in six years. Cook noted that despite this, the current inflation rate, as measured by the Fed's preferred gauge, remains nearly double the central bank's 2% target.
The Federal Open Market Committee held its benchmark interest rate steady for the fourth consecutive meeting last month. However, updated economic projections showed roughly half of the officials anticipate at least one more rate increase this year. A growing number of Fed officials are concerned that inflation has been above target for five consecutive years and remains stubborn.
Earlier the same day, Fed Chair Wash reiterated in Senate testimony the central bank's firm commitment to price stability but countered the view that the AI investment boom will continue to push inflation higher.
Inflation Risks Outweigh Employment Risks
Cook indicated that the balance of risks between inflation and employment has shifted. A year ago, she believed the labor market deserved more attention from policymakers. Today, she stated, "nearly all indicators show the labor market remains stable."
"In fact, I see little reason to believe the labor market faces greater risks today than it did a year ago. Therefore, risks on the employment side have diminished, and the risk balance has tilted further toward the inflation goal," she said.
Cook pointed out that price pressures from escalating AI investment, along with supply shocks from tariffs and the U.S.-Iran conflict in the Middle East, could be factors driving persistent inflation.
She noted that the Middle East conflict had pushed up energy prices earlier this year, but persistent increases in goods prices "highlight that the recent acceleration in inflation is not just an energy price issue."
Cook added she was comforted that medium- to long-term inflation expectations have generally remained stable but cautioned against complacency.
Fed Still Has Time to Assess Data
During a Q&A session following her speech, Cook said the Fed's current monetary policy still exerts a moderately restrictive influence on the economy, and policymakers still have time to evaluate incoming economic data.
"The FOMC has the luxury of patience, and I have the luxury of spending more time watching the data to judge whether current policy is sufficiently restrictive," she said.
Regarding this week's inflation data, Cook emphasized: "This is just one month's data. One month's data does not make a trend. Therefore, we must monitor the path of inflation very carefully in real-time."
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