Despite easing inflation gauges, Fed Gov. Lisa Cook says she's 'prepared to act' and may raise rates

Federal Reserve Governor Lisa Cook said on Wednesday that she is prepared to support higher interest rates if inflation does not resume a clearer slowdown, underscoring a more hawkish message from a central bank that held rates steady just last week. Cook said inflation remains above the Fed’s 2% target and that policymakers may need to respond if progress stalls. Her remarks came as traders continued to weigh the odds of another increase as soon as the September meeting, while consumer-confidence data showed households growing more cautious about the economy. ### What exactly did Lisa Cook say? Lisa Cook said in remarks delivered in Anchorage, Alaska, on August 5 that she was “prepared to act by raising rates, if necessary,” if inflation does not start to cool off. Reuters and CNBC both reported that Cook said inflation was still too high, even though she supported the decision at last week’s meeting to leave rates unchanged. (cnbc.com) Bloomberg’s video report said Cook warned that the longer inflation remains above the central bank’s goal, the harder it may be to bring it back down. Morningstar’s Dow Jones report said Cook also noted that some disinflationary forces are already in place, which could help move inflation toward target without another increase. (money.usnews.com) ### Why do her comments matter after the Fed just held rates steady? The Federal Reserve held its benchmark rate at 3.50% to 3.75% at its late-July meeting, according to multiple reports summarizing last week’s decision. Cook’s comments matter because they came after that hold and signaled that at least one governor sees another increase as a live option if incoming inflation data do not improve. (bloomberg.com) CNBC reported that Cook voted with the majority to keep rates unchanged last week, but said that stance may not remain appropriate without firmer evidence that inflation is easing. Reuters reported that Cook said the risks to the inflation side of the Fed’s mandate are higher than the risks tied to the labor market. (finance.yahoo.com) ### What are markets pricing now? CME Group said its FedWatch tool tracks the probability of policy changes using fed funds futures, and CNBC reported that traders saw a possible move as soon as September, though odds still favored October. Reuters reporting cited in secondary pickups earlier this summer said pricing showed stronger conviction for a hike by October than for one in September. (cnbc.com) Independent trackers that mirror Fed funds futures showed the same broad timing: one listed upcoming meetings on September 16 and October 28, while another snapshot showed September still close to a coin flip. Those figures are not official Fed guidance, but they reflect how traders are positioning around the path of rates. ### What does the consumer-confidence report add to this picture? (cmegroup.com) The Conference Board said on July 28 that its Consumer Confidence Index fell 1.4 points to 90.8 in July from an upwardly revised 92.2 in June. The group said assessments of current conditions softened for a third straight month. The Expectations Index held at 74.7, the Conference Board said, which left it below the threshold that the organization says can signal recession risk. (centralbank.watch) AP’s report on the release said higher grocery and gasoline prices weighed on Americans’ view of the economy. ### If inflation gauges have eased, why is a hike still on the table? (conference-board.org) Morningstar’s Dow Jones report said Cook acknowledged disinflationary forces, but Reuters reported that she still described inflation as “too high” and said she would support action if the slowdown does not continue. That leaves the Fed focused less on whether inflation has improved at the margin and more on whether it is cooling fast enough and durably enough. (conference-board.org) Yahoo Finance’s report on Cook’s remarks said she did not think a hike was necessary at last week’s meeting, but was ready to do so if inflation does not come down soon. That combination — a hold now, with another increase still possible — is what markets are repricing. (morningstar.com) ### What happens next? The next Federal Open Market Committee meetings are scheduled for September 15-16 and October 27-28, according to market calendars and rate-probability trackers. CME Group says FedWatch probabilities will continue to update as investors absorb incoming inflation, labor-market and spending data before those meetings. (cmegroup.com) (finance.yahoo.com)