Fed’s Cook sees further inflationary pressures ahead

Federal Reserve Governor Lisa Cook has highlighted that further inflationary pressures are anticipated in the coming months, primarily due to AI-related demand and elevated oil prices. Speaking at a conference in Oakland, California, Cook acknowledged that the labor market is well-suited to manage an increase in interest rates, but declined to confirm whether additional hikes would be necessary.

She affirmed that she will evaluate the need for any policy rate changes based on the economy's response to current policies and forthcoming inflation and labor data. The Federal Reserve had increased its policy rate for the first time in three years earlier in the month, in line with the unanimous vote from policymakers. This action was taken to accelerate the Fed's 2% inflation target, which has persisted above the goal for over five years.

The surge in oil prices, which rose by approximately 2% on Monday following President Trump's rejection of an Iran deal to reopen the Strait of Hormuz, has also contributed to the inflationary surge. Cook emphasized that while AI-driven productivity gains could bring some relief to inflation in the medium term, these benefits will not be sufficient to counteract inflationary pressures this year.

She noted that these effects are not confined to AI-heavy industries but are permeating broader sectors. Cook's speech primarily centered on the impact of AI on the economy, recognizing its significant transformative potential. Despite observing little evidence that AI is reshaping the labor market structure, Cook remains vigilant about the possibility of a temporary rise in unemployment, a scenario the Fed would have limited ability to address, as rate cuts aimed at supporting the labor market could inadvertently exacerbate inflation.