Fed Gov. Cook Calls For Lower Interest Rates 'At Some Point'

Federal Reserve Gov. Lisa Cook is recommending the Fed lower its interest rate, but she has not said when she thinks that should happen.

The Fed has kept its federal funds rate at 5.25% to 5.50% since meeting earlier this month as part of its goal to bring the inflation rate down to 2%. It is currently at 3.4%, according to the Bureau of Labor Statistics.

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,” Cook said on Tuesday while sharing prepared remarks at the Economic Club of New York.

“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.”

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She said the rate could be lowered because the risk to achieving employment and inflation goals have “moved toward better balance” as a result of steady disinflation and a normalizing labor market.

“I believe our current monetary policy stance is restrictive, putting downward pressure on aggregate demand in the economy,” she said.

“Given our data dependence, we will closely monitor incoming information to determine the future path of policy.”

Cook said she expects three- and six-month inflation rates will keep declining on “a bumpy path,” as a result of consumers’ resistance to price increases. Cook said she also expects 12-month inflation to “roughly move sideways for the rest of this year” as monthly data stays similar to the favorable readings seen during the second half of 2023.

“Beyond that, I see inflation slowing more sharply next year, with housing-services inflation declining to reflect the past slowing in rents on new leases, core goods inflation remaining slightly negative, and inflation in core services excluding housing easing over time,” Cook said.

She pointed out several negative effects of not lowering the Fed rate, such as the 30-year mortgage rate hovering around 7% and banks tightening credit standards over the past two years.

“In particular, small businesses and some small banks and community development financial institutions are experiencing diminished access to credit,” she said. “Many of these businesses also face short-duration loans that need to be refinanced at higher interest rates.”

At the same time, low-to-moderate-income households are also likely experiencing diminished access to credit due to rising delinquencies, unlike the biggest firms and banks, she said.

“Larger firms, like many homeowners, were able to lock in low interest rates for longer terms a few years ago, before rates rose,” she said.

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