Fed's Cook Says Time For Patience On Policy Amid Inflation Risks

• Federal Reserve Governor Lisa Cook said on Thursday that the central bank can take its time to assess a highly unsettled environment before moving interest rates again, amid risks that inflation could worsen due to tariffs. “Amid growing uncertainty and risks to both sides of our dual mandate, I believe it will be appropriate to maintain the policy rate at its current level while continuing to vigilantly monitor developments that could change the outlook,” Cook said in a speech at the University of Pittsburgh.
• During her remarks, Cook warned that tariffs have created risks for price pressures. “Inflation progress will stall in the near term, in part because of tariffs and other policy changes,” she said, adding “I currently place more weight on scenarios where risks are skewed to the upside for inflation and to the downside for growth,” while noting higher inflation and slower growth “could pose challenges for monetary policy.”
• A wide range of economists recoiled from his actions, which exceeded many forecasters’ worst-case scenarios, while financial markets around the world saw big sell-offs amid souring sentiment over the outlook. The tariffs, which are import taxes paid by Americans rather than foreign producers, will likely drive up already high levels of inflation and depress growth, and could even drive the U.S. and other nations into economic downturns, many analysts say.
• Economists share the concern over the impact of tariffs. "The implied U.S. tariff rate now stands near levels higher than during the Great Depression and last seen in the early 1900s," Deutsche Bank economists said on Thursday. Morgan Stanley forecasters said “risks to inflation lie to the upside,” adding “we think tariff-induced inflation will keep the Fed on the sidelines and we remove our June rate cut."
• Trump’s global trade war has put the Fed in a difficult position. Higher inflation argues for officials to hold steady or even potentially hike interest rates, while a weakening economy and souring job market could call for easier policy. Some in markets believe the challenging outlook makes it more likely the Fed could cut rates to try to limit the collateral damage of the president’s actions.

(Source: Reuters)