Federal Reserve Governor Lisa Cook has issued a hawkish signal, stating that she is prepared to raise interest rates if the disinflation process does not progress as expected.
Cook indicated on Wednesday that she currently favors keeping rates steady and anticipates inflation will resume its decline in the coming months. However, she also emphasized that inflation risks remain tilted to the upside. U.S. consumer prices in April recorded their largest increase since 2023, with gasoline, rent, and food prices all rising broadly.
Cook's remarks further reinforce market assessments of the Fed's policy path. With the labor market remaining broadly stable, the renewed acceleration in inflation has replaced employment risks as the more immediate policy concern for officials.
Cook noted that inflation running above the Fed's 2% target for five consecutive years could lead to price pressures becoming embedded in pricing and wage-setting behavior. She stated, "Therefore, if the anticipated slowdown in inflation fails to materialize in a timely manner, I am prepared to raise interest rates."
Minutes from the Fed's last meeting showed that most officials cautioned that if inflation persists above target, the central bank may need to consider raising rates. At that meeting, officials held the benchmark rate steady in the range of 3.5% to 3.75%.
Cook pointed to the ongoing conflict between the U.S. and Iran as a source of volatility in energy markets, posing an upside risk to inflation and representing a significant source of short-term price pressure.
Simultaneously, she identified the artificial intelligence investment boom as another potential source of price shocks. Cook noted that the $1.5 trillion wave of AI investment has already impacted prices for chips and other high-tech equipment, and the future pass-through effect of this factor on overall inflation warrants continued monitoring.
Regarding the labor market, Cook's description was relatively cautious. She views the current job market as generally stable but also noted that downside risks to employment are at an "elevated level," requiring a prolonged period to observe the structural changes AI brings to the economy.
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