Fed Governor Cook says holding rates steady is right for now but warns she is prepared to hike if inflation fails to ease, citing tariffs, Iran war, and AI investment as key price pressures.
Summary:
Source: Federal Reserve Governor Lisa Cook, remarks prepared for the AI policy forum at Stanford’s Institute for Economic Policy Research, 27 May 2026 – via Reuters report
- Cook said holding rates steady is the right course of action given elevated risks on both sides of the Fed’s mandate
- Inflation is moving in the wrong direction, driven by tariffs, oil prices linked to the Iran war, and surging AI-related investment
- She is prepared to raise rates if expected disinflation does not materialise in a timely manner
- Even temporary shocks could embed more persistently into price and wage-setting behaviour after five years of above-target inflation
- The labor market is largely stable but downside risks are elevated; Cook would cut rates if conditions deteriorate
- Cook is broadly optimistic on AI’s productivity benefits but flagged that job losses could precede job gains
Federal Reserve Governor Lisa Cook said on Wednesday that holding short-term interest rates steady remains the right policy for now, but warned she is prepared to raise them if inflation does not come down in a timely fashion, describing price pressures as clearly moving in the wrong direction.
Cook delivered the remarks at a policy forum on artificial intelligence hosted by Stanford’s Institute for Economic Policy Research, where she outlined a risk picture weighted toward higher inflation and a labor market she described as largely stable but exposed to downside risks.
“The risks remain tilted toward higher inflation,” Cook said, adding that she is prepared to raise rates if the expected disinflation does not appear on schedule.
Cook identified three main forces lifting prices: tariffs imposed last year, whose inflationary effects she expects to abate; oil prices that have climbed since the start of the Iran war on February 28; and a surge in AI-related investment driving up demand for chips and software and pushing construction worker wages higher as data center building accelerates.
She acknowledged that some of these shocks should in theory prove temporary but cautioned that after five years of inflation running above the Fed’s 2 percent target, even short-lived pressures risk becoming embedded in price and wage-setting behaviour over the medium term.
Cook voted with the majority at the Fed’s most recent meeting to hold the policy rate in the 3.50 to 3.75 percent range. Her comments position her among a growing group of Fed officials who have signalled that a rate increase remains a live option, a stance that complicates the outlook for new Fed Chair Kevin Warsh, who was appointed by President Donald Trump with expectations of rate reductions once energy prices ease.
On the labor market, Cook said the April unemployment rate of 4.3 percent reflects a broadly stable environment but that downside risks are elevated. She said she would be prepared to lower rates if conditions deteriorate, while for now expecting stability without needing to ease.
Cook also addressed artificial intelligence directly, expressing cautious optimism that rapid adoption will boost productivity and economic growth over time. However, she noted that AI-driven job losses may arrive before any compensating job gains, representing a potential drag on an otherwise resilient labor market. She added that AI may enhance financial stability, though its implications for cybersecurity remain unclear.
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Cook’s remarks reinforce the higher-for-longer rate narrative that has weighed on risk assets and supported the dollar. Her explicit willingness to raise rates, rather than simply hold, adds a hawkish tilt beyond current market pricing. The identification of oil prices linked to the Iran war as a persistent inflation driver keeps geopolitical risk premium relevant for energy markets
