Fed Governor Lisa Cook Warns Elevated Inflation Could Force Interest Rate Increases

The new Federal Reserve chairman, Kevin Warsh, might have an uphill battle to make good on his priorities, including delivering interest rate cuts that President Trump desires and implementing promised reforms.One of the Fed’s governors, Lisa Cook, is the latest to publicly warn that she does not support any rate cuts, at least in the short-term, because inflation is “clearly moving in the wrong direction.” During a Wednesday speech at Stanford University, Ms. Cook cited April numbers that showed prices were up 3.8 percent year-over-year with gas prices being the primary driver.Ms. Cook said she sees elevated risks in both inflation and employment numbers so the best action is to hold rates steady. “However, I want to be clear about my risk assessment: The risks remain tilted toward higher inflation,” Ms. Cook said. She added that she expects disinflation to resume in upcoming months but said she is prepared to raise rates if lower numbers fail to materialize.Another governor, Christopher Waller, last Friday, said he supported removing the “easing bias” in the Fed’s policy statement that signals possible rate cuts and said “a rate cut is no more likely in the future than a rate increase.”Mr. Warsh appears to face headwinds in winning support for another of his priorities: reducing the Fed’s balance sheet. He has repeatedly said that it is critical that the Fed lower its assets and liabilities, which have ballooned to $6.7 trillion since the 2020 pandemic. Mr. Warsh has said that a reduced balance sheet would help keep interest rates lower.Earlier this month, another Fed governor, Michael Barr, said it would be wrong to shrink the central bank’s portfolio of bonds and mortgage-backed securities. Mr. Barr said that shrinking the balance sheet would entail “significant tradeoffs” and could undermine financial stability” of the markets. Mr. Waller also criticized shrinking the bank’s reserves.Separately, Mr. Warsh has suggested that Fed officials cut back on their public addresses. During his confirmation hearing, Mr. Warsh said that they “speak quite frequently” and hinted at a “new framework” for communicating with the public.Mr. Warsh has not hinted at what his plans are for his first policy meeting next month. The Open Market Committee voted in April to leave the benchmark federal funds rate in a range of 3.5 percent to 3.75 percent. Minutes from the meeting released last week showed a majority of the committee members thought it was likely they would need to consider rate increases in the months ahead.Mr. Warsh would need a majority of the 11 voting members of the Federal Open Market Committee — the seven members of the Board of Governors — the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis to support his agenda to get it implemented. One of those members is his predecessor, Jerome Powell, who opted to remain on as a governor after his tenure as chairman ended.

Fed Governor Lisa Cook Warns Elevated Inflation Could Force Interest Rate Increases

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