Federal Reserve Governor Lisa Cook voiced her apprehension on Tuesday regarding the recent advancements in inflation, cautioning that the decline in inflation rates may be short-lived as tariffs continue to influence the economy.
Cook indicated that President Donald Trump’s trade decisions could adversely impact the labor market, yet she remarked that the overall economy is currently stable.
“While I do not comment on the Administration’s policies, my research indicates that these actions may heighten the chances of increased inflation and a cooling labor market,” Cook stated during her remarks at the Council on Foreign Relations in New York.
Addressing inflation metrics, Cook reported some progress, noting that core inflation stands at 2.5% and headline inflation at 2.1% as of April, based on the Federal Reserve’s preferred measure disclosed last week.
Nonetheless, economists predominantly predict that the tariffs will lead to an uptick in costs. Although Federal Reserve officials typically regard tariffs as isolated price impacts, the extensive nature of the tariffs rolled out under Trump could shift this perspective.
“Price hikes associated with trade policy adjustments may complicate efforts to achieve further inflation reductions in the near future,” Cook acknowledged. “The recent period of heightened inflation may prompt businesses to increase their prices more readily, while consumers could begin to expect long-lasting inflation.”
A survey-based inflation metric suggests a significant rise in inflation is anticipated over the next year; however, market-driven indicators reflect more subdued projections for the longer term.
Cook’s remarks come in advance of the Federal Reserve’s upcoming policy meeting set for June 17-18. Current market predictions indicate the central bank is likely to maintain interest rates, a sentiment that aligns with recent comments from other policymakers. Traders are forecasting that the next reduction in rates may occur in September.
Cook refrained from specifying a timeline for when the Fed might consider easing rates again, emphasizing that the policy framework is designed to allow her and her colleagues to adapt to emerging risks related to employment and inflation stability.
“I believe the U.S. economy remains robust, yet increasing uncertainty poses threats to both price stability and unemployment rates,” she stated. “In our decision-making, I find it beneficial to draw lessons from economic history. Our experiences in recent times have provided crucial insights for navigating periods characterized by high uncertainty and risks to our dual mandate.”
Earlier on Tuesday, Atlanta Fed President Raphael Bostic suggested that only one rate cut is likely this year, citing that “most of the [inflation] measures are still flashing red.”
Conversely, in a speech delivered over the weekend, Fed Governor Christopher Waller expressed optimism that the actual impacts of tariffs might be less severe than anticipated, potentially allowing the Fed to implement favorable rate cuts before the end of 2025.
