MNI BRIEF: Fed’s Cook Sees Inflation Risk Titled To Upside

Federal Reserve Governor Lisa Cook said Wednesday she is keenly focused on ensuring that inflation is returning to the central bank's 2% goal after nearly five years of above-target price growth.

"At this time, I see risks as tilted toward higher inflation," said Cook in prepared remarks. "I supported the FOMC’s decision to hold the policy rate steady at our meeting last week." 

"There is an argument for being optimistic about the path of inflation, but, until I see stronger evidence that inflation is moving sustainably back down to target, that is where my focus will be, in the absence of unexpected changes in the labor market," she said in a speech to the Economic Club of Miami. 

Cook sees the U.S. economy as continuing to be resilient, with recent data indicating that growth in the second half of 2025 was even stronger than previously forecast. (See: MNI INTERVIEW: Fed To Keep Cutting On Jobs Weakness - Tilley) 

CREDIBILITY

"Inflation appears to have stalled stubbornly above our 2% goal, while at the same time the labor market appears to have stabilized in recent months" and "the labor market will continue to be supported by the three rate cuts last year," Cook said. 

She sees 12-month PCE inflation at the end of December at 2.9% and core PCE at 3%. "Those readings indicate that progress on inflation essentially stalled in 2025."

The disinflationary trend has continued for housing services, and nonhousing service costs have also eased, consistent with a less tight labor market, she said. "Conversely, when looking at core goods prices, we have seen a notable uptick in inflation. That primarily reflects an increase in tariffs last year on a wide variety of imported products."

"I am watching the clock here—the longer inflation remains above target, the greater the probability that higher inflation will become entrenched in expectations," Cook said. "After nearly five years of above-target inflation, it is essential that we maintain our credibility by returning to a disinflationary path and achieving our target in the relatively near future."