US Fed’s Cook ready to raise rates if inflation doesn’t start easing

[NEW YORK] Federal Reserve Governor Lisa Cook said on Wednesday (Aug 5) that she’s open to the idea that the central bank may need to raise its short-term interest rate target to deal with “too high” levels of inflation in the US economy.

If inflation doesn’t start to cool off “I am prepared to act by raising rates, if necessary,” Cook said in a speech delivered before the 2026 Economic Luncheon of the Anchorage Economic Development Corporation in Anchorage, Alaska.

The risks to the inflation side of the Fed’s mandate are higher than the risks to its job market goal, Cook said. If the Fed needed to raise rates to tackle strong price pressures, Cook said she would weigh how that potential action would affect the overall economy, noting “I would support an increase, if it becomes necessary, to bring inflation down. It may not.”

Cook also said the Fed is running out of space to deal with inflation given how long it has overshot the 2 per cent target. As measured by the personal consumption expenditures price index, inflation in June versus the same month a year before stood at 3.7 per cent.

Cook warned “Inflation may become entrenched in price- and wage-setting behaviour, leading to persistence that would be much harder for us to attack,” adding, “while we might be able to afford to wait for longer in a different environment, we do not have that luxury in this one.”

Hawks rising

Cook was among the officials who voted in favour last week of the central bank keeping its 3.5 per cent to 3.75 per cent federal funds target rate range unchanged despite inflation pressures standing well above the 2 per cent target.

That decision to keep rates steady garnered three dissenting votes from officials who argued that a rate hike was needed now to help bring price pressures down. Over recent days, officials like New York Fed President John Williams and Philadelphia Fed leader Anna Paulson have signalled an openness to raising rates if needed.

In this active mix of Fed commentary, Chairman Kevin Warsh has steadfastly refused to provide guidance about the future of interest rate policy and has had little to say about how he reaches monetary policy decisions.

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Cook said of the FOMC meeting that “I felt it was appropriate not to change rates while we see how” inflation trends shape up. She noted that drivers of inflation like tariffs, the Middle East war and investment tied to the artificial intelligence sector, may ease, which would help lower overall price pressures and obviate the case for raising interest rates.

That said, Cook noted “I am firmly committed to restoring price stability.”

The Fed governor also said in her speech that the sour mood of consumers is tied to a number of factors including inflation. She also said that thus far “the most dire predictions about AI job losses have not materialised,” even as risks remain. REUTERS