Fed’s Cook emphasizes need for ‘cautious’ approach to rate cuts

Federal Reserve Gov. Lisa Cook said the U.S. central bank must take a cautious approach to cutting interest rates to allow more time for inflation to slow down in some segments of the economy.

Fed policymakers left rates unchanged at their meeting last week at a two-decade high, and maintained their forecast for three rate cuts this year by a slim margin. Of the 19 Fed officials, nine saw two cuts or fewer in 2024, with two of those officials forecasting no cuts at all.

“The risks to achieving our employment and inflation goals are moving into better balance,” Cook said in the text of an economics lecture at Harvard University on Monday. “Nonetheless, fully restoring price stability may take a cautious approach to easing monetary policy over time.”

The U.S. economy has continued to surprise economists with its strength despite high borrowing costs. Employers have added an average of 231,000 payrolls over the past six months. Fed officials revised up their 2024 growth outlook last week to 2.1% from 1.4% in December.

Meanwhile, a key inflation gauge has surpassed economists’ expectations so far this year, rising at a faster-than-expected pace in January and February. That has pushed back market expectations for the first rate cut, which investors now anticipate will come in June.

“The path of disinflation, as expected, has been bumpy and uneven, but a careful approach to further policy adjustments can ensure that inflation will return sustainably to 2% while striving to maintain the strong labor market,” Cook said.

Cook, a Biden appointee, joined the Fed board in May 2022, and was previously an economics professor at Michigan State University.

Atlanta Fed President Raphael Bostic, a voting member of the policy-setting Federal Open Market Committee this year, repeated Monday that he forecast just one cut for 2024. Chicago chief Austan Goolsbee said he is among policymakers still anticipating three reductions this year.