MNI: Fed's Cook Sees Rate Cuts 'At Some Point'

The Federal Reserve will lower interest rates "at some point" as long as inflation continues to slow and the labor market cools gradually, Fed Governor Lisa Cook said Tuesday.

"I believe that our current policy is well positioned to respond as needed to any changes in the economic outlook. With significant progress on inflation and the labor market cooling gradually, at some point it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy," she said in remarks prepared for the Economic Club of New York. But persistently high inflation or a sharp weakening in the job market would call for different policy responses, she said.

"The timing of any such adjustment will depend on how economic data evolve and what they imply for the economic outlook and balance of risks."

If instead, inflation stays high and threatens to lift inflation expectations, it would call for "keeping monetary policy restrictive for longer," she said. Alternatively, if the economy and labor market weaken more sharply than expected, "monetary policy would need to respond to such a threat to the employment side of the dual mandate," she said, echoing her colleagues' emphasis on various economic scenarios.

RESTRICTIVE POLICY WORKING

Reports that consumers are becoming more resistant to price increases foreshadow continued progress on disinflation, Cook said. She expects three- and six-month inflation rates to continue to move lower "on a bumpy path" while the 12-month rate moves sideways for the rest of this year.

Inflation should slow more sharply next year as housing services price increases fall and inflation in core services excluding housing ease over time, she said.

There are also signs of better balance in the labor market, she said. The ratio of job vacancies to unemployment has fallen to 1.2 in April from a high of 2.0 in 2022 and workers are also less likely to leave their current jobs in search of new ones. Wage growth is also moderating, she noted.

"I believe our current monetary policy stance is restrictive, putting downward pressure on aggregate demand in the economy. With disinflation continuing, albeit at a slower pace this year, and the labor market having largely normalized, I see the risks to achieving our employment and inflation goals as having moved toward better balance." (See: MNI POLICY: Fed Policy Looks Tight, Bolstering Case For Cuts)