Fed Governor Lisa Cook sees tariffs raising inflation, complicating rate policy

Federal Reserve Governor Lisa Cook recently expressed her concerns about the current state of inflation and its potential impact on the economy. In a speech to the Council on Foreign Relations in New York, Cook highlighted the risks associated with President Donald Trump’s trade policies and their potential effects on both inflation and the labor market.

While acknowledging that the economy is currently in relatively good shape, Cook pointed out that recent lower readings on inflation could be temporary and may reverse once tariffs start to impact the economy. She emphasized that the tariffs imposed by the Trump administration could lead to higher inflation and cooling in the labor market.

Cook noted that core inflation was at 2.5% and headline inflation at 2.1% in April, according to the Fed’s preferred measure. However, she warned that the tariffs could push costs higher, making it challenging to achieve further progress in the near term. The uncertainty surrounding trade policy could also lead to firms raising prices and consumers expecting higher inflation to persist.

Market expectations suggest that the Fed will maintain interest rates at its upcoming policy meeting on June 17-18, with the next rate cut likely to occur in September. Cook did not provide a specific timeline for when she believes the Fed can ease again, but she emphasized the importance of remaining vigilant in responding to threats to the Fed’s mandate for full employment and low inflation.

Atlanta Fed President Raphael Bostic anticipates only one rate cut this year, citing concerns about inflation measures still “flashing red.” However, Fed Governor Christopher Waller believes that the impact of tariffs may be less severe than expected, potentially allowing for rate cuts later in the year.

In conclusion, Cook’s remarks underscore the challenges facing the economy amid uncertainty surrounding trade policy and inflation. As policymakers navigate these risks, the Fed remains committed to its dual mandate of achieving full employment and price stability. Investors and analysts will be closely monitoring the Fed’s decisions in the coming months to gauge the impact on the broader economy.