Fed's Cook says she is prepared to act soon if inflation does not begin to slow

Federal Reserve Governor Lisa Cook said Wednesday she is prepared to act on interest rates if inflation does not soon show signs of slowing, marking one of the more direct signals yet from a sitting Fed governor that a rate hike could be on the table this year.

Cook's Core Message

Cook said the risk of persistent inflation now outweighs that of a weakening labor market, pointing to the artificial-intelligence buildout and recent supply shocks as key drivers of price pressure. "If we do not see signs of disinflation soon, I am prepared to act," she said in remarks delivered Wednesday in Washington. "I am fully committed to reaching our inflation target, and this commitment is unwavering." Speaking to the Exchequer Club of Washington, D.C., Cook said she saw it as prudent to give "a bit more time" to observe how inflation unfolds, while cautioning that risks going forward remain "strongly weighted toward higher inflation" because of the AI investment boom and price pressures from tariffs and the Middle East conflict.

Why the Risk Balance Has Shifted for Cook

Cook explained that she now views the balance of risks as having shifted meaningfully from a year ago, when she saw the labor market as deserving slightly more weight in policy decisions. Now, she said, "nearly all indicators point to stability" in the labor market, adding: "In fact, I see few reasons that today's labour market has more risk than a year earlier. Therefore, risks on the employment side have diminished. The balance of risks has teetered toward the inflation mandate."

Cook estimated that headline inflation this year will land about one percentage point higher than what was anticipated a year ago, citing an AI buildout that "does not show signs of slowing," alongside tariffs and Middle East conflict that "risk leading to persistently higher inflation." She noted that despite a June CPI report showing prices actually declined for the first time in six years, that figure and other recent data still imply inflation is running nearly 2 percentage points above the Fed's target based on its preferred gauge.

A Note of Caution on Reading Too Much Into One Month

Despite her hawkish framing, Cook cautioned against overreacting to a single data point, describing the Fed's current policy stance as having only a "mildly restrictive" effect on the economy and saying policymakers have time to assess incoming data. "The FOMC can take its time, I can take my time to observe more data to understand whether it's really restrictive or not," she said. "Inflation readings this week were just for one month, and one month does not make a trend. So we have to be very careful about monitoring this in real time."

Cook added that she takes some comfort in medium- and long-term inflation expectations remaining largely in check, but stressed that shouldn't lead to complacency: "This sign of public confidence in the Fed is reassuring, but it does not mean that we can take our eye off the ball," she said, warning of a risk that "the high inflation we have seen boosts inflation going forward."

Part of a Broader Hawkish Shift Among Fed Officials

Cook's remarks add to a growing chorus of Fed officials debating the prospect of a rate hike that investors anticipate could come as soon as this fall, with Fed Governor Christopher Waller also saying this week that the central bank may need to act unless there is consistent evidence of slower inflation in the months ahead. Waller has specifically said he'd support interest rate increases in the "near term" if inflation continues to rise, framing his position around avoiding a repeat of the Fed's delayed response to inflation in 2021: "I am cognizant of the mistake we made in 2021 by not responding sooner to the high inflation we observed, and I am determined to avoid repeating it."

Fed Chairman Kevin Warsh has largely avoided commenting directly on his own interest rate views, even as sentiment among his colleagues has shifted toward the need for tighter monetary policy. In Senate testimony earlier the same day, Warsh reiterated his commitment to price stability but pushed back on the notion that the AI boom will necessarily spur persistent inflation.

Backdrop: A Fed Governor Who Nearly Lost Her Seat

Cook's remarks come against the backdrop of a legal battle over her position on the Board, after President Trump attempted to remove her before her term expired, alleging she had committed mortgage fraud by improperly claiming two different homes as her primary residence. Cook has denied the allegations as unfounded and politically motivated. A federal district court initially blocked her removal, and the case ultimately reached the Supreme Court, which ruled 5-4 on June 29 that Cook could remain on the Board for now because the administration had failed to provide the procedural protections required by law before attempting to remove her. Chief Justice John Roberts wrote that while a president may remove a Fed governor "for cause," the statutory process — including notice and an opportunity to respond — must first be followed, a ruling seen as reinforcing the Federal Reserve's institutional independence more broadly.

What's Next

The outlook for rates grew murkier this week after the government released two generally benign inflation reports, and the Fed's policy-setting committee is scheduled to hold its next meeting July 28-29. New economic projections released at the Fed's last meeting showed roughly half of committee members anticipate at least one interest rate increase this year, reflecting a growing chorus of policymakers voicing concern over inflation that has stayed above the Fed's target for five years. With Cook and Waller both signaling openness to tightening and Chair Warsh keeping his own views close to the vest, the July 28-29 meeting is shaping up as a genuine test of how the newly reconstituted Fed leadership will navigate a period of stubbornly elevated prices layered on top of geopolitical and technological uncertainty.