MNI: Cook Says Appropriate For Fed To Slow Hikes At Some Point

Federal Reserve Governor Lisa Cook in her first public speech Thursday endorsed the U.S. central bank's historically fast pace of interest rate increases but said it will become appropriate at some point to slow the tightening, adding that monetary policy may hit the real economy faster these days.

"At some point, as we continue to tighten monetary policy, it will become appropriate to slow the pace of increases while we assess the effects of our cumulative tightening on the economy and inflation," she said, still stressing policy should depend on how quickly progress is made toward the Fed's inflation goal.

Cook described the labor market as "very strong" and, while noting that she expects housing services inflation will likely boost overall inflation well into next year, she sees signs that inflation could come down faster than expected.

"There are reasons to expect core goods inflation to slow in coming months," she said, pointing to a considerable decline in wholesale used vehicle prices, expectations for new car prices to moderate, easing supple constraints, and declining freight prices.

"In the current situation, with risks to inflation forecasts skewed to the upside, I believe policy judgments must be based on whether and when we see inflation actually falling in the data, rather than just in forecasts," Cook added.

MONETARY POLICY LAG

Still, "inflation remains stubbornly and unacceptably high, and data over the past few months show that inflationary pressures remain broad based," she said. "I am focused on the lag between signs of easing price pressures and actual inflation coming down from its very high levels."

In considering whether standard models remain appropriate, Cook's focus is the well-known long and variable lag between monetary policy actions and their effect on the real economy and on inflation.

"Less of a lag may exist now between rate hikes and the tightening of financial conditions, which occurs as markets anticipate future rate hikes," she said in prepared remarks for a speech to the Peterson Institute for International Economics.

The governor also addressed concerns that the Fed may be overdoing it by not accounting for foreign central bank tightening and cross-border spillovers. While the Fed has a domestic mandate, the FOMC is "very attuned to foreign developments," she said. " There is substantial uncertainty about the size of these spillovers."