In a speech yesterday, Fed Governor Lisa Cook discussed her considerations for the future path of monetary policy, weighing the implications of stronger economic momentum against potential headwinds from recent banking developments.
Cook explained, “On the one hand, if tighter financing conditions restrain the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence. On the other hand, if data show continued strength in the economy and slower disinflation, we may have more work to do.”
Regarding Fed’s strategy on rate hikes, Cook mentioned that FOMC has been raising rates in smaller increments, aiming for a sufficiently restrictive monetary policy to return inflation to 2% over time. She emphasized the benefit of taking smaller steps, as it allows Fed to observe economic and financial conditions and evaluate the cumulative effects of their policy actions.
Cook also touched on FOMC’s recent adjustments to its forward guidance on the path of the policy rate in its March statement. The committee shifted from anticipating “ongoing increases” to stating that “some additional policy firming may be appropriate.” Cook believes this communication is suitable as Fed seeks to calibrate monetary policy amid uncertainty about the economic outlook.
