The governor of the Federal Reserve System, Lisa Cook, said that the central bank of the United States needs to take a cautious approach when deciding on monetary policy easing.
Lisa Cook made the mentioned statement during a speech at an event hosted by Harvard University. She, like many of her colleagues, in the context of discussions on the topic of a potential lowering in interest rates, draws attention to the fact that currently there is a rough balance between the dangers associated with too early easing of monetary policy and the risks that may arise against the background of a late decision.
Lisa Cook says that premature or excessively intensive cost of borrowing cuts can cause sustained inflation above the target and stop the progress that is already being observed. It is worth noting that this point of view is a kind of consolidated opinion of officials of the central bank of the United States. Moreover, Lisa Cook said that a belated decision to ease monetary policy could be a factor in curbing economic growth. In this case, according to her, unnecessary harm will be caused.
During a speech at the specified event, Lisa Cook also stated that the full restoration of price stability in the United States may take some time, noting the need for caution in softening the concept of monetary policy. She noted that the return of inflation to the Fed’s 2% target has been bumpy and uneven. According to her, a careful approach to further adjustments of monetary policy can guarantee a steady path of the dynamic of the growth in the cost of goods and services to the mentioned indicator while striving to maintain a strong labor market. The current unemployment rate in the United States is 3.9%.
At the same time, Lisa Cook did not talk about when, in her opinion, the right moment would come to start cutting interest rates, or what pace the process of implementing the relevant policy of the financial regulator should be. However, she noted that the Fed should proceed, once it decides to lower its benchmark overnight interest rate.
Officials of the central bank of the United States forecasted during a policy meeting last week that it would be justified to cut the cost of borrowing by three-quarters of a percentage point in 2024. The prevailing view among investors is that the Fed’s monetary policy easing will begin in June.
Lisa Cook said she expects inflation in the housing sector to continue to weaken. According to her, in the mentioned sector, the price reduction currently has a lower degree of intensity compared to the dynamic of this process last year.
In January, in the United States, the personal consumption expenditures price index excluding food and energy costs showed an increase of 2.8% year-on-year. Fed officials expect this figure to drop to 2.6% by the end of the current year.
Lisa Cook says that productivity growth in the United States can become a factor in the country’s economic growth above trend without the resumption of the high inflation observed in 2021 and 2022.
As we have reported earlier, Jerome Powell Says Fed Needs More Confidence on Inflation to Cut Rates.
