Cook said inflation expectations remain stable only if policy stays appropriately restrictive, while warning tariffs, Middle East conflict and AI investment could keep price pressures elevated.
Federal Reserve Governor Lisa D. Cook said the balance of risks facing the U.S. economy has shifted toward inflation even as the labor market remains broadly stable, and warned that policymakers cannot become complacent if they want inflation expectations to stay anchored. She said it would be reasonable to expect inflation to slow for a time, but added that the Fed is prepared to take necessary steps if price increases do not ease quickly enough. Cook said risks have moved notably since last summer, with upside inflation risks increasing while downside labor-market risks have diminished. She described the U.S. labor market as generally stable and said there are some reasons to expect further cooling in inflation, though she flagged tariffs, conflict in the Middle East and investment tied to artificial intelligence as sources of persistent price pressure. The new remarks reinforce Cook’s earlier message that inflation risks now outweigh employment concerns. In her prior Washington speech, she said recent CPI and PPI data still implied the Fed’s target price index rose 3.7% in the 12 months through June, above the central bank’s 2% goal, while unemployment stood at 4.2% in June and other labor indicators pointed to resilience. The latest account also introduces comments attributed to Federal Reserve Chairman Kevin Warsh, who said recent inflation data may not fully capture underlying price pressures and that he was not satisfied with any inflation indicator. Warsh said the labor market appears strong, but the inflation outlook is less reassuring, and added that the Fed will assess its available tools, including interest rates and balance sheet policy, as well as whether changes to existing tools are needed to ensure price stability.