Cook says Fed has to move carefully before cutting interest rates

By Jeffry Bartash

Fed governor offers few hints of timing or size of rate cuts

Federal Reserve Gov. Lisa Cook said Monday the central bank needs to take a "careful approach" in deciding when to cut interest rates, but she gave few clues on the timing or size of any reductions.

Last week, the Fed left a key short-term U.S. interest rate unchanged while signaling it's still likely to make three rate cuts later in the year.

In an address to students at Harvard, Cook noted inflation has slowed and the labor market is "normalizing." A normal labor market is one in which the demand and supply of labor are balanced and wages are rising more slowly.

Cook also said the cost of rent - a key source of recent inflation - is easing. That should pave the way for a further deceleration in prices in the months ahead.

Still, Cook emphasized, as she has in other speeches, that the Fed has to proceed with caution. If it cuts rates too soon, inflation could be harder to wring out of the economy, she said. Waiting too long could increase the risk of a recession.

"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.

The Fed jacked interest rates in 2022 and 2023 to quell the worst U.S. inflation in four decades. It's now assessing when to cut rates in light of a sharp slowdown in inflation.

Complicating matters has been a seeming rebound in inflation in early 2024. Fed Chairman Jerome Powell suggested last week the return of price pressures could be a statistical anomaly or prove temporary.

Fed officials seem almost evenly divided by those who prefer two or fewer rate cuts this year and those who expect three or more.

-Jeffry Bartash

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03-25-24 1133ET

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