Fed's Cook warns possible hike

Federal Reserve Governor Lisa Cook said on August 5 that she is prepared to support a rate increase if inflation does not continue to cool. Cook spoke in Anchorage, Alaska, one week after the Federal Open Market Committee voted 9-3 to leave the benchmark federal funds rate unchanged at 3.5% to 3.75%. In remarks published by the Federal Reserve, she said inflation remains “too high” and that the risks are now tilted more to prices than to employment. Markets later raised the odds of a move later this year, according to CNBC’s account of CME FedWatch pricing. ### What exactly did Cook say in Alaska? Lisa Cook said in her August 5 speech that “inflation is too high” and that she would not put too much weight on a single month of better data. The Fed’s June personal consumption expenditures price index rose 3.7% from a year earlier, while core prices rose 3.3%, according to her prepared remarks. (federalreserve.gov) Cook told the Anchorage audience that “I am prepared to act by raising rates, if necessary,” and added that if she does not see continued disinflation soon, she is ready to support that step. CNBC reported she also said the Fed does not have “the luxury” of waiting if inflation fails to move back toward target. (federalreserve.gov) ### Why did her comments matter after the Fed held rates steady? The July rate decision left policy unchanged, but Cook’s remarks showed at least one governor sees renewed tightening as a live option. CNBC reported Cook joined a 9-3 majority last week to hold rates steady, while Minneapolis Fed President Neel Kashkari, one of the dissenters, said the same day that he still believes higher rates are necessary. (cnbc.com) Cook said several forces have kept pressure on prices. In the speech text, she pointed to higher energy costs linked to the Middle East conflict and to capital spending tied to artificial intelligence infrastructure, which she said has raised prices for semiconductors, high-tech equipment, software and utilities. (cnbc.com) ### What are markets looking at now? CNBC said traders were assigning higher odds to an October move, with September also seen as possible, based on CME FedWatch pricing after Cook’s remarks. That shift did not amount to a policy decision, but it showed investors treating her comments as a more hawkish signal than the post-meeting hold alone. (federalreserve.gov) The Fed’s own language in Cook’s speech was direct about the risk. She said five years of above-target inflation raise the chance that faster price growth becomes embedded in wage- and price-setting behavior, which would make it harder to reverse later. ### Why are people also talking about fewer Fed meetings? (cnbc.com) International Business Times reported on August 5 that Chair Kevin Warsh is considering cutting the Fed’s scheduled rate-setting meetings from eight a year to six, while adding two separate meetings focused on broader economic issues. IBTimes said the change could be finalized before the next FOMC meeting in September, citing a New York Times report. (federalreserve.gov) The same report said the Fed has used the current eight-meeting schedule since 1981 and that officials could still act between scheduled sessions if conditions warranted. IBTimes also said fewer scheduled meetings would not necessarily mean fewer rate changes, but would reduce the number of routine decision points on the calendar. (ibtimes.com) ### What is the next concrete thing to watch? The next focal points are the incoming inflation data and the September FOMC meeting. IBTimes reported any change to the meeting calendar could be settled before that meeting, while Cook said her decision will depend on whether disinflation continues in the data. (ibtimes.com)