MNI: Cook Says Fed on Hold Until Uncertainty Clears

Federal Reserve Governor Lisa Cook said Thursday the U.S. economy has entered a period of uncertainty and it will be appropriate to hold rates steady while keeping an eye on developments that could alter the outlook.

"Currently, my baseline forecast is that U.S. economic growth will slow moderately this year, with the unemployment rate picking up a bit, while inflation progress will stall in the near term, in part because of tariffs and other policy changes," she said in prepared remarks. "Elevated and rising uncertainty, however, means that I am very attentive to scenarios that could be quite different from my baseline."

"Amid growing uncertainty and risks to both sides of our dual mandate, I believe it will be appropriate to maintain the policy rate at its current level while continuing to vigilantly monitor developments that could change the outlook," she said in a speech at the University of Pittsburgh.

It is possible that new policies could prove to be minimally disruptive and consumer demand could remain resilient, and overall growth may be stronger than anticipated, she said. "However, I currently place more weight on scenarios where risks are skewed to the upside for inflation and to the downside for growth. Such scenarios, with higher initial inflation and slower growth, could pose challenges for monetary policy."

Even before Wednesday's bigger than expected announcements on trade policy, businesses and consumers reported a high degree of uncertainty about current and future trade policy actions, and surveys generally show increased expectations of inflation, at least for the coming year, she said. (See: MNI POLICY: Fed Forced Into Hawkish Stance Despite Growth Risk)

"For now, we can afford to be patient but attentive. I believe that policy is well situated to respond to developments, and I am continuously updating my outlook as matters evolve," she said. 

Tariff increases typically result in an increase in the level of prices for the affected goods, which temporarily pushes up the overall inflation rate, Cook said. "But what matters for monetary policy would be a persistent boost to inflation."