Fed Vice Chair: "Inflation Risk Still Leaning Towards the Upside"

Fed Vice Chair: "Inflation Risk Still Leaning Towards the Upside"

Governor Lisa Cook: Interest Rate Freeze Appropriate for Now

Federal Reserve (Fed) officials have successively mentioned the upside risks to inflation.

Bloomberg reported that Fed Vice Chair Philip Jefferson said in a speech distributed in advance of a conference hosted by the Bank of Japan in Tokyo on the 28th that inflation is expected to slow in the latter half of this year as the effects of tariffs and rising energy prices weaken.

However, Vice Chair Jefferson added that inflation risks are still leaning towards the upside.

He stated that he is closely monitoring signs that rising energy costs due to the war in Iran are negatively impacting consumer spending. He also added that signs of a weakening labor market continue to appear.

He said, "I believe the current policy stance is very well-positioned to respond to changing economic conditions, based on incoming economic data, evolving outlooks, and the balance of risks."

Austin Goolsbee, President of the Federal Reserve Bank of Chicago, said that increasing expectations for the productivity improvement potential of artificial intelligence (AI) could heighten inflationary pressures.

President Goolsbee stated, "As expectations for future productivity grow, we may need to raise interest rates further to prevent overheating."

He warned, "The problem could worsen if we face short-term supply shocks due to oil price fluctuations, supply chain disruptions, and other factors."

Goolsbee's remarks refute the view that AI could be a deflationary factor, creating room for central banks to cut interest rates.

Earlier, Fed Governor Lisa Cook stated on the 27th (local time) that inflation is heading in the wrong direction, and if this trend continues, she is prepared to raise interest rates.

Governor Cook made this statement at a Stanford University event, saying, "What I want to make clear in my risk assessment is that the upside risks to inflation remain high."

She deemed it appropriate to freeze interest rates for the time being, anticipating that the inflation rate would slow down again in the coming months.

However, she pointed out that if inflation continues at a level above the Fed's target of 2% for five years, there is a risk that inflationary pressures could become entrenched in price and wage decisions.

She further emphasized, "I am prepared to raise interest rates if the expected disinflation (easing of inflation) does not materialize in a timely manner."

Governor Cook also assessed the current U.S. labor market as largely stable but diagnosed that downside risks to employment have increased.

Additionally, she mentioned that the recent $1.5 trillion AI investment boom, centered on semiconductors and advanced equipment, could become another factor contributing to upward price pressure.