Fed’s Cook ready to raise rates if disinflation stalls

Federal Reserve Governor Lisa Cook told a luncheon hosted by the Anchorage Economic Development Corporation in Anchorage that she is prepared to support raising interest rates if disinflation stalls. She highlighted the personal consumption expenditures price index’s 3.7% increase in the 12 months through June.

Cook noted some disinflationary forces are at work but cautioned against relying on a single monthly reading. She pointed out the annual consumer inflation rate fell to 3.5% in June, the first decline in five months, and described the outlook as highly uncertain.

On the Fed’s dual mandate, Cook judged the risks on the inflation side as larger than risks to employment. She warned, “As I have described, inflation is too high, and I consider the risks to the inflation side of the dual mandate higher than the risks to the employment side at this point.” She added that she is “prepared to act by raising rates, if necessary.”

Cook also warned that after five years of inflation above target there is greater risk that higher inflation could become embedded in price- and wage-setting behavior, making it harder to reverse. She said, “If I do not see signs of continued disinflation soon, I am prepared to act.”

Cook noted that the PCE index is the Federal Reserve’s preferred inflation gauge and that the 3.7% year-over-year gain through June remains well above the Fed’s 2% target.

She acknowledged that further rate increases would likely affect financial markets and risk-sensitive assets, and observed that higher interest rates can put pressure on cryptocurrencies and other high-risk investments.

Fed officials are watching incoming inflation and labor market data to guide future policy decisions. Cook’s remarks were delivered as policymakers assess whether disinflation continues and whether additional policy tightening will be required.