Fed’s Cook: Can afford to proceed more cautiously with further cuts

Fed Governor Lisa Cook highlighted in a speech today that Fed can “afford to proceed more cautiously with further cuts”. She noted that risks to the dual mandate of price stability and maximum employment are now “roughly in balance”. But since September, “The labor market has been somewhat more resilient, while inflation has been stickier than I assumed”. Also, with the 100bps of rate cuts last year, Fed has already “notably reduced the restrictiveness of monetary policy. ”

Elaborating on the outlook, Cook highlighted progress in core goods pricing, which has eased due to better supply-demand balance. She expects housing services inflation, a significant contributor to elevated prices, to cool further in 2025 as slower rent growth filters through the system. However, she remains watchful of uneven progress, maintaining confidence that inflation will “gradually—if unevenly—return over time to our goal of 2 percent.”

Turning to the labor market, Cook described it as solid but moderating. High turnover and elevated job-switching seen earlier in the post-pandemic recovery have subsided, creating better balance between supply and demand for labor. “I do not see the labor market as a source of significant inflationary pressure,” she added, noting that wage growth disparities between job switchers and stayers have largely diminished.

Full speech of Fed’s Cook here.