Federal Reserve Governor Lisa Cook stated on Monday that the central bank is poised to adopt a more cautious approach to interest-rate cuts in the coming months, despite the likelihood of further reductions being necessary over time.
Speaking at a conference hosted by the University of Michigan in Ann Arbor, Cook highlighted the Federal Reserve’s strategic shift in policy, emphasizing that its recent percentage-point reductions in the benchmark interest rate since September have already eased the economic cooling measures significantly. With inflation still above the central bank’s 2% target, she suggested that a more deliberate pace of rate cuts could be the appropriate course moving forward.
“All along, I envisioned moving more quickly in the early stages of our easing campaign and then easing more gradually as the policy rate came closer to neutral,” Cook remarked, referencing the published text of her speech.
The Federal Reserve, after implementing the most aggressive interest rate hikes in over a decade to combat post-pandemic inflation, shifted gears in September as price pressures began to moderate. The initial action included a substantial half-point rate cut, followed by subsequent quarter-point reductions in November and December. These adjustments marked a measured effort to recalibrate monetary policy while monitoring inflationary trends.
However, persistent inflation above the Fed’s target has prompted officials to consider pausing rate cuts at their upcoming meeting in late January. Market sentiment appears aligned with this possibility, as futures traders on Monday morning assigned a 91% probability to the Fed maintaining current rates, even prior to Cook’s comments.
Cook underscored the central bank’s balancing act between two primary economic risks: inflation and unemployment. While inflation remains a concern, the labor market—though still robust—has shown signs of cooling over the past year. Cook pointed to a decline in hiring activity and fewer job openings per job seeker as evidence of this moderation.
The Federal Reserve’s approach reflects its dual mandate to promote maximum employment and stable prices. As policymakers navigate these dual objectives, Cook’s remarks suggest a measured and data-driven strategy for future interest rate decisions, with the ultimate goal of sustaining economic stability amid evolving conditions.
