By Steven K. Beckner
(MaceNews) – Federal Reserve Governor Lisa Cook joined other Fed officials Monday in opening the new year with ambiguous comments about the outlook for monetary policy.
Cook, like several colleagues, gave no indication she is eager to resume interest rate reductions in 2025, preferring to wait to see how inflation and employment trends develop in an uncertain climate.
Citing lower inflation and cooler labor markets, she said the Fed “can afford to proceed more cautiously with further cuts.”
Over the weekend, Fed Gov. Adriana Kugler and San Francisco Federal Reserve Bank President Mary Daly also struck a seemingly neutral stance, saying they want to make further progress against inflation but that they also want to guard against greater weakness in employment.
And Richmond Fed President Thomas Barkin weighed in Friday by saying the Fed is “well positioned to respond” however the economy evolves.
On Dec. 18, the Fed’s policy-making Federal Open Market Committee completed 100 basis points of easing by cutting key federal funds rate by 25 basis points to a target range of 4.25% to 4.5%. — a median 4.4%.
The 19 FOMC participants halved their projections for rate cuts in the new year from four to two. In their revised, quarterly Summary of Economic Projections, they project the funds rate will end 2025 at a median 3.9% (a target range of 3.75-4.0%) — 50 basis points higher than in the September SEP.
In its policy statement, the FOMC signaled that further cuts in the federal funds rate are likely to be more limited, and Chair Jerome Powell reinforced the impression by saying he and fellow policymakers will be proceeding “slowly” and “cautiously” as they seek to balance their goals of “maximum employment” and returning to “price stability.”
The FOMC’s first meeting of the year will be Tuesday, January 28, and Wednesday, January 29.
Cook, speaking to at the University of Michigan Law School in Ann Arbor, Michigan, said she voted for the Dec. 18 rate cut because “over the course of last year, inflation made gradual progress toward our objective, while the labor market gradually cooled.”
Going forward, she said she indicated she’s not strongly inclined to change monetary policy in either direction. She said she “view(s) the risks to achieving the two sides of the Federal Reserve’s dual mandate of price stability and maximum employment as being roughly in balance.”
Cook indicated that rates will eventually need to go lower, but that she’s in no hurry to do so.
“Over time, I still think it will likely be appropriate to move the policy rate toward a more neutral stance,” she said. “However, the 100 basis points of rate cuts since September have notably reduced the restrictiveness of monetary policy. “
“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,” she continued. “In addition, since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time. “
“Thus, I think we can afford to proceed more cautiously with further cuts,” Cook added.
Deploying the usual Fed disclaimer, she said “policy is not on a preset course. The magnitude and timing of future changes to policy rates will depend on incoming data, the evolving outlook, and the balance of risks.”
Regarding inflation, Cook said “price increases have cooled notably over the past two and a half years, but, despite this significant progress on disinflation, there is still further to go before reaching our inflation target of 2%.”
She described the labor market as “solid, though as having cooled over the past year,” after previously being “very tight.”
Cook said she “will continue to monitor developments in the labor market closely, including continuing claims, which have risen in recent months.”
“I do not see the labor market as a source of significant inflationary pressure,” she added.
Participating in a forum at the annual meeting of the American Economic Association over the weekend, Daly and Kugler were similarly balanced in their comments.
“We are fully aware that we are not there yet – no one is popping champagne anywhere,” Kugler said, but “ at the same time … we want the unemployment rate to stay where it is,” rather than climb higher.
Daly said that “at this point, I would not want to see further slowing in the labor market — maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labor market.”
Given uncertainty about tariffs and other issues, Barkin withheld judgment on what the Fed might need to do with monetary policy in 2025, but indicated he remains more concerned about inflation than about unemployment.
“How economic policy uncertainty resolves will matter,” he said in Friday remarks to an Economic Outlook Forum near Baltimore, Md. “But, with what we know today, I expect more upside than downside in terms of growth. That’s why you see so much business optimism.”
“If I’m wrong, the damage could be lessened by the potential to walk some of those policies back,” he continued. “I see more risk on the inflation side. Wage and product costs could see pressure. If they do, given recent experience with inflation, price-setters might have more courage to pass costs along.”
“I expect the story for the coming year to be more about supply and demand — and perhaps geopolitics — than monetary policy,” Barkin went on. “That said, the Fed remains well positioned regardless of how the economy develops. Were employment to falter or inflation to reemerge, we have the tools to respond.