Federal Reserve Governor Lisa Cook said policymakers can proceed more cautiously with additional rate cuts, citing a sturdy labor market and recent bumpiness in inflation data.
“Since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time,” Cook said Monday in prepared remarks at the Seventh Conference on Law and Macroeconomics in Ann Arbor, Michigan. “Thus, I think we can afford to proceed more cautiously with further cuts.”
Officials lowered borrowing costs in December for the third straight time, after launching reductions in September. Cook said those interest-rate cuts “have notably reduced the restrictiveness of monetary policy.”
“All along, I envisioned moving more quickly in the early stages of our easing campaign and then easing more gradually as the policy rate came closer to neutral,” she said. The neutral rate is one that neither promotes nor inhibits economic activity.
“Over time, I still think it will likely be appropriate to move the policy rate toward a more neutral stance,” Cook said.
Officials in updated economic projections released last month signaled just two reductions for 2025. Chair Jerome Powell has indicated the pace of rate cuts this year will depend on further progress on taming inflation.
Policymakers are widely expected to leave interest rates unchanged when they gather later this month.
Cook said the US economy starts the year “in good shape.” She characterized the employment landscape as solid, given relatively low unemployment and wage growth that is outpacing inflation on average. She said she does not see the labor market as a source of significant inflationary pressure.
While commenting that price growth has cooled notably in recent years, she said “there is still further to go before reaching our inflation target of 2%.”
“I continue to see inflation as gradually — if unevenly — returning over time to our goal of 2% in a sustainable manner,” Cook said.
Financial Stability
Much of Cook’s speech was dedicated to financial stability issues in the US. She characterized the financial system as “sound and resilient.” But she also identified private credit, stablecoins, cyber events and artificial intelligence as areas she’s monitoring for vulnerabilities.
Cook, who is chair of the Board of Governors’ Committee on Financial Stability, pointed to potential risks in the application of AI to securities trading.
Generative AI “can be a powerful tool for executing different trading strategies, including momentum trading, and could generate or exacerbate the same dynamics seen during the flash crash of 2010 and similar crashes,” she said.
“The good position of the financial system is consistent with a broader economy that is strong, with a solid labor market and moderating inflation,” Cook said.
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