Voices within the Federal Reserve calling for preparedness to raise interest rates have continued even after new Chair Kevin Warsh officially took office. Analysts expect Warsh to face a difficult balancing act between steep inflation and President Donald Trump's expectations for rate cuts.
According to Bloomberg on Thursday (local time), Federal Reserve Governor Lisa Cook said at a forum hosted by the Stanford Institute for Economic Policy Research in California, "It is clear that inflation risks remain elevated," adding, "We are prepared to raise interest rates if disinflation does not materialize in a timely manner." Cook specifically cited artificial intelligence (AI) investments totaling 1.5 trillion dollars as a factor driving inflation. She suggested that if the AI investment boom is reflected in prices of semiconductors and advanced equipment, it could further fuel inflation. "It is appropriate to hold rates steady for the time being, as inflation is expected to slow in the coming months," Cook said, while warning, "If inflation continues to exceed the Fed's 2% target for five years, price increases could become embedded in prices and wages."
Federal Reserve Governor Christopher Waller, who has been classified as a representative dove (favoring monetary easing), also said in a lecture in Frankfurt, Germany, on the 22nd of this month, the day Warsh took office, "If inflation does not subside soon, I would not rule out the possibility of raising rates." Minneapolis Federal Reserve Bank President Neel Kashkari and Boston Fed President Susan Collins also agreed that "the possibility of rate hikes should be left open." According to the Federal Reserve, a majority of Federal Open Market Committee (FOMC) members have argued since last month's regular meeting that some policy tightening (rate hikes) would likely be appropriate if inflation continues to exceed 2%.
