Amara Omeokwe and Enda Curran
Federal Reserve Governor Lisa Cook said the risk of persistent inflation now outweighs that of a weakening labor market, as the artificial-intelligence build-out and recent supply shocks drive price pressures.
“If we do not see signs of disinflation soon, I am prepared to act,” Cook said in remarks during an event Wednesday in Washington. “I am fully committed to reaching our inflation target, and this commitment is unwavering.”
Notably, her remarks follow a June consumer-price report that showed a decline in prices for the first time in six years. Cook said those figures, along with others released this week, still imply inflation is nearly 2 percentage-points above the Fed’s target, according to the central bank’s preferred gauge.
Policymakers on the Federal Open Market Committee left their benchmark interest rate unchanged at their meeting last month for a fourth consecutive time, but their fresh economic projections showed about half of officials see at least one rate hike this year. A growing number of officials have expressed concern with stubborn inflation that has remained above the Fed’s objective for five years now.
In Senate testimony earlier Wednesday, Fed Chairman Kevin Warsh reiterated his commitment to deliver price stability, but also pushed back against the notion that the boom in AI will spur persistent inflation.
Inflation vs. Labor Market
Cook said Wednesday she sees the balance of risks between inflation and employment as having shifted from a year ago, when she viewed the labor market as deserving of slightly more consideration. Now, she said, “nearly all indicators point to stability,” in the labor market.
“In fact, I see few reasons that today’s labor market has more risk than a year earlier,” she said. “Therefore, risks on the employment side have diminished. The balance of risks has teetered toward the inflation mandate.”
She pointed to price pressures tied to continued investments into artificial intelligence, along with supply shocks stemming from tariffs and the conflict in the Middle East between the US and Iran as potential drivers of persistently higher inflation. The Middle East conflict drove up energy prices earlier in the year, but Cook said rising goods prices “underscore the fact that the recent acceleration in inflation is not only an energy price story.”
Cook added that she is comforted that medium- and long-term inflation expectations appear to be mostly in check, but added a caveat.
“This sign of public confidence in the Fed is reassuring, but it does not mean that we can take our eye off the ball,” she said, adding that there’s a risk “the high inflation we have seen boosts inflation going forward.”
In a question and answer session after her speech, Cook described the Fed’s current monetary policy stance as having a mildly restrictive effect on the economy, and said policymakers have time to assess incoming data.
“The FOMC can take its time, I can take my time to observe more data to understand whether it’s really restrictive or not,” Cook said. Inflation readings this week “were just for for one month, and one month is not a trend made. So we have to be very careful about monitoring this in real time.”