MNI: Fed's Cook - Policy Well Placed To Face Two-Sided Risks

The U.S. economy faces heightened risks of both higher inflation and a weaker job market, and the current level of interest rates leaves the Federal Reserve in a good place to respond if either threat materializes, Fed Governor Lisa Cook said Tuesday. 

"The current stance of monetary policy is well positioned to respond to a range of potential developments," Cook said in prepared remarks to the Council on Foreign Relations. "As I consider the appropriate path of monetary policy, I will carefully consider how to balance our dual mandate, and I will take into account the fact that price stability is essential for achieving long periods of
strong labor market conditions."

Cook said higher U.S. tariffs are already affecting the economy both by dampening activity and bolstering inflationary risks. 

"I do not express views on the Administration’s policies. But I do study the economic implications, which appear to be increasing the likelihood of both higher inflation and labor-market cooling," Cook said.

"I anticipate a slowdown in the expansion of economic activity from last year’s pace. The ultimate level of tariffs remains unknown because policy changes are still developing. However, the effects are already noticeable. Manufacturing output declined in April. Orders for heavy trucks plunged. Firms reported a drop in capital expenditure plans for 2025." (See MNI INTERVIEW: Tariff Uncertainty To Drive Factory Outlook-ISM)

She said inflation has fallen from its post-Covid peaks but "remains somewhat above target." In addition, the "post-pandemic experience with high inflation could make firms more willing to raise prices and consumers more likely to expect high inflation to persist."

Cook said the labor market remained resilient through early spring but "trade policy changes could alter hiring plans in the near future."