Cook noted on Wednesday that oil prices and the AI investment boom are exerting upward pressure on prices; with inflation having run above the Federal Reserve's 2% target for five consecutive years, there is a risk that higher prices could become entrenched in pricing and wage-setting behavior. Therefore, if the anticipated slowdown in inflation does not materialize promptly, the Fed stands ready to raise interest rates.
Federal Reserve Governor Lisa Cook sent a hawkish signal, stating she is prepared to raise interest rates if the disinflation process does not progress as expected.
Speaking at an event at Stanford University on Wednesday, Cook said she currently favors holding rates steady and expects inflation to resume its decline in the coming months, but emphasized that upside risks to inflation remain. U.S. consumer prices rose at their fastest pace since 2023 in April, with gasoline, rent, and food prices all increasing broadly.
Cook’s remarks further reinforced market expectations regarding the Federal Reserve’s policy path. Against the backdrop of a broadly stable labor market, renewed acceleration in inflation has overtaken employment risks as the more pressing policy concern for officials.
Rising oil prices and the AI investment boom fuel inflation, putting rate hikes back on the agenda
Cook noted that if inflation remains above the Fed’s 2% target for five consecutive years, it could become entrenched in pricing and wage-setting behavior. She stated, “Therefore, if the anticipated moderation in inflation does not materialize in a timely manner, I am prepared to raise interest rates.”
Minutes from the Federal Reserve’s meeting last month showed that a majority of officials warned the central bank might need to consider raising rates if inflation persists above target. At that meeting, officials kept the benchmark interest rate unchanged in the range of 3.5% to 3.75%.
Cook pointed out that ongoing tensions between the United States and Iran continue to disrupt energy markets, exerting upward pressure on inflation—a key source of near-term price pressures.
Meanwhile, she identified the artificial intelligence investment boom as another potential source of price shocks. Cook noted that the $1.5 trillion wave of AI-related investments has already affected prices of semiconductors and other high-tech equipment, and the transmission of this factor to broader inflation warrants continued monitoring.
On the labor market front, Cook adopted a relatively cautious tone. She described the current job market as generally stable but noted that downside risks to employment are at a “relatively high level,” requiring prolonged observation of AI’s structural impact on the economy.
Editor/Lambor