Lisa Cook, Speech/Interview: Peterson Institute for International Economics
Speech Segment
“Less of a lag may exist now between rate hikes and the tightening of financial conditions, which occurs as markets anticipate future rate hikes. Residential investment also responds quickly to changes in monetary policy, while consumer spending is slower to react. Lags between monetary policy and inflation are even more unclear. Expectations of future monetary policy can have quite rapid effects on commodity and other import prices, but monetary transmission through economic slack appears to affect inflation more slowly.”
“And given my risk-management approach, with upside risks to inflation being the most salient, I fully supported the step-up in the front-loading of policy over the past three FOMC meetings … Front-loading has several positive features. It puts monetary restraint into place more quickly to reduce demand while supply is constrained. It may also act to rein in inflation expectations and, as a result, to influence wage- and price-setting behavior. This preemptive approach is appropriate. Although lowering inflation will bring some pain, a failure to restore price stability would make it much harder and much more painful to restore it in the future.”
Interview Segment
“My response based on those two features has been to raise my expectations with respect to persistent inflation and to vote for, to agree with, support the frontloading of rate hikes, also addressing the salient risk that high inflation could become, and don’t want to say vote for, at least endorse or support higher rate hikes.”
“So I think that high inflation that has required this frontloading and it’s required to short circuit the potential psychology that can take hold, that can become entrenched related to inflation expectations.”
“So going forward, as I mentioned in my speech, as we continue to assess, to continue to tighten policy, it’ll become appropriate to slow the pace of increases and then assess the effects of our cumulative tightening on the outcomes we’re interested in on the economy and on inflation.”