Holding Steady Last Week Was a Pause for Observation! Fed's Cook Hawks: Ready to Support Rate Hikes If Inflation Doesn't Cool

Federal Reserve Governor Lisa Cook said Wednesday (6th) that she believed there was no need to raise interest rates last week, but if inflation does not cool down soon, she is ready to support further rate hikes to address "still too high" price pressures.

Cook delivered remarks at the 2026 Economic Luncheon hosted by the Anchorage Economic Development Corporation in Anchorage, Alaska, stating: "If inflation doesn't start coming down soon, I am prepared to take rate-hiking actions as necessary."

She believes that within the Fed's dual mandate, inflation risks currently outweigh employment risks. If rate hikes become necessary to curb prices, she will also assess their impact on the broader economy.

"If it becomes necessary to bring inflation down, I will support rate hikes, though it's possible we may ultimately not need to," she said.

### Shrinking Room to Fight Inflation

Cook warned that with U.S. inflation having exceeded the Fed's 2% target for five consecutive years, the risk of inflation expectations becoming entrenched is rising. According to the Fed's preferred Personal Consumption Expenditures (PCE) price index, year-over-year inflation in June stood at 3.7%.

She cautioned that prolonged high inflation could gradually become embedded in corporate pricing and wage-setting behaviors, making it harder for the Fed to reduce inflation in the future. "The longer inflation remains above target, the more likely this scenario becomes. Therefore, under current conditions, we cannot afford to wait any longer."

### Reasons for Supporting No Rate Change Last Week

Cook explained that her support for holding rates steady last week stemmed from the view that several factors currently pushing up inflation may not persist. Most tariffs implemented last year have already been reflected in prices, and due to higher base effects, their upward pressure on inflation is expected to diminish over time.

She also noted that Middle East conflicts have driven up oil prices, but markets widely expect oil prices to decline before year-end. Additionally, prices of components surging due to strong artificial intelligence (AI) demand are expected to ease as supply chains adjust.

"Therefore, I believe it is appropriate right now to hold steady and observe how these factors evolve," she said.

### Hawkish Voices Emerging Internally

Last week, the Fed voted 9-to-3 to keep the federal funds rate target range unchanged at 3.50–3.75%, but three regional Federal Reserve bank presidents—Beth Hammack, Neel Kashkari, and Lorie Logan—advocated for an immediate 25-basis-point rate hike to combat inflation.

In contrast, Fed Chair Kevin Warsh has not yet provided clear guidance on the future path of interest rates or detailed his monetary policy decision logic.

Kashkari told CNBC on Wednesday that gradual rate hikes should begin now to fight inflation, though he did not advocate for aggressive increases.

Meanwhile, Kansas City Fed President Jeff Schmid said Tuesday evening that inflation remains too high and that higher interest rates are still needed to bring it down. He is not a voting member of the Federal Open Market Committee (FOMC) this year.