Media365
The US Federal Reserve remains firmly committed to restoring inflation to its 2 per cent target, with Governor Lisa D. Cook saying that inflation risks now outweigh concerns over the labour market despite signs of a resilient US economy.
Speaking at the Exchequer Club on the economic outlook, Cook said persistent inflation continues to impose a significant burden on American households, making price stability the Fed’s top priority.
Although the latest Consumer Price Index (CPI) and Producer Price Index (PPI) reports came in softer than expected, Cook noted that the Fed’s preferred inflation gauge still rose 3.7 per cent in the 12 months through June—1.7 percentage points above the central bank’s 2 per cent target.
“We have not reached our 2 per cent target in more than five years,” Cook said, underscoring that inflation remains well above the Fed’s long-term objective.
On the labour market, Cook said the US unemployment rate stood at 4.2% in June, broadly unchanged over the past year and close to what economists consider the economy’s natural rate of unemployment.
While acknowledging that a low-hire, low-fire labour market has made it more difficult for first-time job seekers to find employment, she said there is little evidence that the slowdown in hiring signals a broader deterioration in labour market conditions. Instead, structural factors and slower population growth are driving the trend.
“I see few reasons that today’s labour market has more risk than a year earlier. Therefore, risks on the employment side have diminished. The balance of risks has teetered toward the inflation mandate,” Cook said.
Cook also highlighted the strength of the broader economy, noting that US GDP expanded 2 per cent in 2025 and is projected to grow 2.2 per cent in 2026, both exceeding previous forecasts. Labour productivity has averaged a robust 2.5 per cent annual growth over the past two years, while rapid investment in AI data centres has added momentum to economic activity.
However, inflationary pressures remain elevated. Cook said headline inflation in 2026 is now expected to be about one percentage point higher than forecast a year ago, while core inflation has also exceeded expectations, driven by core goods prices rising at an annual pace of around 5 per cent.
She identified two major inflationary shocks this year—the conflict in the Middle East and stronger-than-expected capital spending on AI infrastructure—which have increased upside risks to prices.
Despite refraining from offering guidance on the future path of interest rates, Cook reiterated that the Federal Reserve’s focus remains unchanged.
“I view the US economy as remaining resilient,” she said. “While I will decline to predict the path of policy today, I will underscore that I am committed to returning inflation to our 2 per cent goal.”
