Fed's Cook Ready to Raise Rates If Disinflation Fails

Fed's Cook Ready to Raise Rates If Disinflation Fails

Federal Reserve Governor Lisa Cook said she is prepared to raise interest rates if disinflation does not appear in a timely manner. Speaking at Stanford University, she stated that for now, the right course of action is to hold rates steady, but risks still remain tilted toward higher inflation.

Inflation and Rate Policy

"After five years of above-target inflation, I am particularly attuned to the risk that elevated inflation will become embedded in price- and wage-setting behavior," Cook said. She expects the labor market to remain stable without the need to lower rates, but would adjust policy downward if the job market deteriorates.

AI and Inflation

Cook noted that inflation has been pushed up by supply-driven shocks, such as the war with Iran, but even temporary shocks could influence inflation in the medium term. She added that heightened investment demand due to artificial intelligence could layer on another price shock. Cook is optimistic about AI's potential to boost productivity, support new jobs, and put downward pressure on inflation.