Fed Gov. Cook: 'inflation is simply too high'

• Key takeaway: Federal Reserve Gov. Lisa Cook said the Iran war and the rapid buildout of AI data centers reinforce her view that inflation will remain persistent.
• Expert quote: "If we do not see signs of disinflation soon, I am prepared to act. I am fully committed to reaching our inflation target, and this commitment is unwavering." — Fed Gov. Lisa Cook
• What's at stake: The ongoing Iran war and its effect on energy prices could continue to fuel inflation, further complicating the Federal Reserve's path for monetary policy. 

Federal Reserve Gov. Lisa Cook on Wednesday reiterated her concerns about inflation, saying she is prepared "to act" if price pressures do not ease.

Speaking at an Exchequer Club luncheon, Cook said inflation could worsen because of two unexpected price shocks: the Iran war and the build-out of AI data centers. Together, those factors keep monetary policy "strongly weighted toward higher inflation," she said.

Cook said the Iran war has driven up energy prices, which are likely to spill over into other categories, including food. She added that the evolving geopolitical situation creates "a lot of uncertainty as to when the price pressures from this shock will be resolved."

Energy costs have contributed to higher inflation since the start of the conflict. Bureau of Labor Statistics data shows consumer prices in June rose 3.5% from a year earlier. 

Cook also expressed concern about how rising capital expenditures tied to AI infrastructure will affect inflation. She said spending on data centers has increased demand for chips, software and utilities, putting upward pressure on prices.

Those pressures are likely to intensify, she said, noting that companies have announced more than $1.5 trillion in data center investments, only a portion of which have been completed.

"Both of these new developments add weight to the inflation risk side of the seesaw, which is now tilting toward the ground," Cook said. "As a whole, I see a notable shift in the balance of risks relative to a year or so ago, with inflation risks now outweighing employment risks."

"The initial assessment is easy: Inflation is simply too high," she added.

On employment, Cook said the labor market remains solid, citing the nearly unchanged unemployment rate of 4.2%. She said "nearly all indicators" point to a resilient job market, with unemployment claims remaining low, payroll growth continuing at a moderate pace and job openings increasing.

Cook noted that the Fed has not achieved its 2% inflation target in more than five years and said she is "prepared to act" if disinflation does not resume soon. "I am fully committed to reaching our inflation target, and this commitment is unwavering," she said.

Cook's remarks echo those of other Federal Reserve officials, including Federal Reserve Gov. Christopher Waller and Fed Chairman Kevin Warsh, who have expressed concern regarding elevated inflation.

Waller said at a July event that he would support interest rate increases in the "near term" if inflation continues to rise. He said he wants to avoid repeating the Fed's response during the pandemic, when policymakers viewed inflation as "transitory" and delayed tightening monetary policy.

"I am cognizant of the mistake we made in 2021 by not responding sooner to the high inflation we observed, and I am determined to avoid repeating it," Waller said.