Fed's Cook: Risks are skewed toward higher inflation
US Federal Reserve (Fed) Governor Lisa Cook said on Wednesday that risks are skewed toward higher inflation, adding that she’s optimistic about inflation's path yet cautious and vigilant.

US Federal Reserve (Fed) Governor Lisa Cook said on Wednesday that risks are skewed toward higher inflation, adding that she’s optimistic about inflation's path yet cautious and vigilant.

Key quotes

Risks are skewed toward higher inflation.

US inflation has stalled persistently above 2% goal.

Optimistic about inflation's path yet cautious and vigilant.

See economy growing slightly better than 2 percent this year.

Concerned about possible timing mismatch between costs of AI investment and increase in productivity.

Best thing Federal Reserve can do is ensure inflation returns to and stays at target.

It is anticipated that disinflation could resume as tariff effects recede, but there is much uncertainty.

US economy solid although some signs of worsening outlook for low and moderate income households.  

It is essential to return to a disinflationary path and achieve the inflation target in the near future.

Weak consumer sentiment does not reveal a signal about an increase in slack that can be tackled with Fed policy rate.

I believe the labor market will continue to be supported by last year's Federal Reserve rate cuts.

Labor market has stabilized and is approximately in balance, but highly attentive to potential for rapid shift.

Will not have anything today on recent legal proceedings. Will continue to carry out duties at Fed. 

Look forward to getting to know Warsh but do not comment on candidates for Federal Reserve roles.

Last core personal consumption expenditures reading way above Federal Reserve target. 

Goods inflation hopefully will dissipate quickly; once it does, we should be back on the disinflation path.

Have to monitor labor market very closely. 

US monetary policy is somewhat restrictive. 

It is the right time to sit back and wait to see what happens. 

I want to wait to see what happens, considering long and variable delays. 

Still a lot to monitor regarding financial stability, including credit. 

Market reaction

At the time of writing, the US Dollar Index (DXY) is trading around 97.65, up 0.26% on the day. 

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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