Fed’s Cook: Expects inflation to move sideways for the rest of the year and drop in 2026

Federal Reserve (Fed) Lisa Cook noted that she expects the Fed’s progress on inflation to continue despite a bumpy start to the year. Fed Governor Cook was addressing the Economic Club of New York on Tuesday.

Key highlights

At some point it will be appropriate to cut rates.

Current policy is well positioned to respond to economic outlook.

A rise in inflation expectations would imply keeping monetary policy restrictive for longer.

I am very attentive to inflation expectations.

The timing of any policy adjustment will depend on economic data and its implications for outlook and the balance of risks.

Monetary policy is restrictive.

Inflation has slowed, and the labor market tightness has eased.

I am fully committed to 2% inflation target.

Policy would also need to respond to sharper-than-expected weakening of economy and the job market.

The job market is tight but not overheated.

The risks to achieving inflation and employment goals have moved toward better balance.

I see 12-month inflation moving sideways for the rest of this year, and slowing more sharply next year.

I expect 3 and 6 month inflation rates to move lower on a bumpy path.

Progress on inflation has slowed, but I expect the disinflation trend to continue.

I lean toward optimism on innovation, productivity, allowing faster pace of non-inflationary growth.

Rising credit card and auto loan delinquencies are not yet concerning, but need watching.

I expect economic growth to remain near the rate of potential growth, somewhat above 2%.

Monthly job gains needed to keep the unemployment rate steady likely have doubled to nearly 200,000.

The financial system is not currently positioned to unusually amplify any future shock.

More Fed Cook:

There are challenges measuring housing inflation.

It is defensible to include owners equivalent rent in CPI.

There’s been long-standing shortage of housing

The Fed is watching the unemployment rate, but it’s still at a low level.

The Fed has the tools to adjust if there’s an unexpected shift in unemployment.

There’s ample evidence that monetary policy is restrictive.

It will be a challenge to push productivity beyond long-term average.