Federal Reserve Governor Cook: Inflation risks have outweighed employment risks, and action will be taken if inflation does not cool down.

Federal Reserve Governor Lisa Cook stated that the current risk of sustained high inflation has surpassed the risk of a weakening labor market, as the artificial intelligence investment boom and recent supply shocks have pushed up price pressures.

Cook said at an event in Washington on Wednesday:

“If we do not see signs of inflation easing in the near term, I am prepared to take action. I am fully committed to achieving our inflation target, and that commitment is unwavering.”

It is noteworthy that the U.S. June consumer price report on Tuesday showed prices fell month-over-month for the first time in six years. Nevertheless, Cook noted that according to the Fed’s preferred inflation measure, the current inflation rate is still nearly double the Fed’s 2% target.

The Federal Open Market Committee (FOMC) kept the benchmark interest rate unchanged for the fourth consecutive time at last month’s meeting. However, the latest economic forecasts show about half the officials expect at least one more rate hike this year. An increasing number of Federal Reserve officials are concerned as inflation has remained above the Fed’s target for five consecutive years and remains stubbornly high.

Earlier that day, Fed Chair Waller reiterated during Senate testimony that the Fed will firmly achieve price stability. At the same time, he refuted the view that the “AI boom will continue to push up inflation.”

Inflation Risk Surpasses Employment Risk

Cook said she believes the risk balance between inflation and employment has shifted. A year ago, she thought policymakers should pay more attention to the labor market; now, she says, “almost every indicator shows the labor market is holding steady.” She said:

“In fact, I see almost no reason to believe that today’s labor market faces greater risks than a year ago. Therefore, employment-related risks have eased, and the risk balance has tilted further toward the inflation target.”

Cook pointed out that persistent price pressures from heavy AI investment, as well as tariffs and supply shocks caused by U.S.-Iran Middle East conflicts, could push inflation to remain high.

She said that Middle East conflicts pushed up energy prices earlier this year, but continued commodity price increases “highlight that the recent acceleration in inflation is not just about energy prices.”

Cook also said she is reassured that medium- and long-term inflation expectations remain generally stable, but she warned vigilance must not be relaxed.

The Fed Still Has Time to Observe Data

In the Q&A session after her speech, Cook said the Fed’s current monetary policy remains moderately restrictive and policymakers still have time to assess upcoming economic data.

She said: “The FOMC can respond calmly, and I can take more time to observe data to judge whether the current policy is restrictive enough.”

Regarding this week’s inflation data release, Cook emphasized: “This is only one month of data; one month does not make a trend. Therefore, we must carefully monitor inflation developments in real time.”

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