On January 8, Federal Reserve Governor Cook stated at a conference at the University of Michigan Law School that the current strong job market and persistent inflation make policymakers more cautious when considering further rate cuts. Since the Fed began cutting rates last September, the resilience of the U.S. labor market has exceeded expectations, and inflation has been more stubborn. Cook noted, "Therefore, I believe it is reasonable to take a more cautious approach regarding further rate cuts."
Last year, the Federal Reserve cut rates three times, lowering the policy rate by a total of 100 basis points. Cook stated that these measures significantly reduced the restrictiveness of monetary policy, providing more support for the economy. She explained that in the early stages of easing policy, the Fed moved quickly, but as rates approach neutral levels, policy adjustments will be more moderate.
Cook mentioned that the Federal Reserve aims to adjust rates to more neutral levels at the appropriate time. A neutral rate is one that neither stimulates nor restrains economic activity. In last month's economic forecast, Fed officials predicted that there might only be two rate cuts by 2025. Fed Chair Powell emphasized that the pace of rate cuts this year will depend on the progress of curbing inflation. The market generally expects the Fed to keep rates unchanged at the January policy meeting.
Cook also expressed optimism about the current performance of the U.S. economy. She pointed out that at the start of this year, the U.S. unemployment rate remains at a historic low, real income has increased, and wage growth is outpacing inflation, which supports consumer confidence and economic growth. At the same time, she believes the labor market has not triggered significant inflationary pressure, providing more flexibility for future monetary policy.
Regarding inflation, Cook stated that although recent inflation has significantly declined, it has not yet reached the 2% target. She believes achieving this goal requires time and patience, but trusts that inflation will gradually return to the target level in a sustainable manner.
In addition, Cook spent a considerable amount of time discussing her views on financial stability. She stated that the U.S. financial system is generally "robust and resilient," but also noted potential risks in certain areas, including private credit, stablecoins, cybersecurity, and artificial intelligence. She specifically warned that the unclear interconnections between institutions in private credit could amplify the impact on the financial system during a crisis. While artificial intelligence technology has great potential, if models are biased or flawed, it could also become a source of risk for the financial system.
Cook emphasized the need to continuously strengthen regulation and monitoring to address these potential challenges and ensure the long-term stability of the financial system.
