Fed’s Cook Says Assessing Tighter Credit, Strong Data for Interest Rate Decisions

(Bloomberg) — Federal Reserve Governor Lisa Cook said that US inflation remains elevated and “broad based,” but she’s assessing the impact of tighter credit conditions to determine how high interest rates need to be to bridle price pressures.

“This data-dependent, risk-management framework has led me to support the FOMC’s response of rapid monetary policy tightening,” Cook said Friday, referring to the policy-setting Federal Open Market Committee.

“Currently, with the federal funds rate target near 5%, I am looking at what rate will be sufficiently restrictive to bring inflation down to 2%, over time,” she said in prepared remarks at Georgetown University in Washington.

Cook echoed her colleagues in pointing to the need for a meeting-by-meeting approach to policy after aggressive Fed tightening over the past year and given uncertainties surrounding the fallout from last month’s bank collapses.

Policymakers meet again May 2-3 and are expected to deliver a third consecutive quarter-point interest-rate increase. That follows larger moves last year, including four 75-basis-point hikes, as officials sought to bring down surging inflation.

Cook’s speech, just hours before the Fed’s pre-meeting communications blackout period begins at midnight on Friday, was the final scheduled public remarks from a US central banker.

She pointed to welcome developments in inflation data, with many prices abating, and said it was “encouraging” that March consumer prices indicated a slowdown in housing services inflation.

But a lot of the declines have been driven by easing energy prices, she said, warning that the path back to the Fed’s goal of 2% could be long and uneven.

“All of these measures have come off their peaks but remain elevated, suggesting that inflation has become broad based in the economy,” Cook said.

She said she is weighing the impact of tighter lending conditions stemming from the failure of Silicon Valley Bank last month, and the ensuing turmoil, against more positive economic indicators.

“If tighter financing conditions are a significant headwind on the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence,” Cook said. “But if data show continued strength in the economy and slower disinflation, we may have more work to do.”