DETROIT — Lisa Cook, a member of the Federal Reserve Board of Governors, said the Federal Reserve will continue to work to bring down inflation "until the job is done," which includes increasing interest rates.
The job will be done when the Fed's preferred measure of increasing prices is at the central bank's 2% target. Presently, it's running about three times that rate, despite the Fed raising its policy rate nearly 4 percentage points to its highest level in 14 years. Some fear increasing rates will raise unemployment.
"Notwithstanding some easing of these pressures on goods prices, services prices continue to rise briskly," said Cook, who became the first Black woman to join the Fed's board in May. "Altogether, inflation is still unacceptably high and must be our primary focus."
How much rates could increase by, though, Cook says remains unclear: "As we get closer to that uncertain destination, it would be prudent to move in smaller steps. How far we go, and how long we keep rates restrictive, will depend on observed progress in bringing down inflation."
Her statements comes as the Fed's chair, Jerome Powell, also said Wednesday the bank will push rates higher than previously expected and keep them there for an extended period to steady the economy.
Regarding the potential for a recession, Cook says the Federal Reserve isn't the one to make that determination. The National Bureau of Economic Research looks at economic indicators that are widespread throughout the economy and over the course of months to classify a recession. The burst of a housing bubble cascaded into the Great Recession.
"The housing sector is in a much better place" than the previous financial crisis, Cook said, noting credit quality is different when it comes to mortgages today.
And the Federal Reserve has learned from the past, she added, noting how the bank moved quickly during the pandemic: "The financial system has held up."
Major drivers of inflation are a labor shortage and supply-chain bottlenecks, the former Michigan State University professor said, but she emphasized the role of productivity in pricing. She noted the rate at which productivity has grown is half that it was in the mid-'00s.
"This is cause for concern," she said. "When firms see rising output per hour, they have room to keep prices low. For consumer goods, this can help lower inflation. For material inputs, this lowers the cost of downstream production. And for equipment, lower prices mean more capital investment, a knock-on effect that boosts productivity further."