Federal Reserve Governor Lisa Cook said the US central bank is prepared to raise interest rates if inflation does not continue moving lower, signaling that price stability remains the Fed's foremost concern even as policymakers hold rates steady.

Cook: Inflation Outweighs Labor Market Risks

Cook said inflation remains above the Federal Reserve's 2% target and continues to pose the greater risk to the economy compared with employment. She stated that policymakers stand ready to tighten monetary policy further if inflation fails to show additional progress.

"If I do not see signs of continued disinflation soon, I am prepared to act by raising rates, if necessary," Cook said. "I would support an increase, if it becomes necessary, to bring inflation down. It may not."

The Federal Reserve left its benchmark interest rate unchanged at a range of 3.5% to 3.75% during its latest policy meeting — the overnight lending rate that influences borrowing costs across the economy, from mortgages to business loans. Cook supported holding rates steady while officials assess incoming economic data and the effects of recent inflation drivers.

She noted that inflation has remained above the Fed's target for several years, increasing the risk that elevated prices could become embedded in wage negotiations and business pricing decisions.

Tariffs, Oil Prices, and AI Costs Under Watch

Cook said several factors that have sustained inflation could ease in the coming months. She pointed to tariffs, higher oil prices linked to Middle East tensions, and increased investment in artificial intelligence infrastructure as areas that could gradually exert less pressure on consumer prices.

Policymakers expect some of the inflation generated by earlier tariff measures to fade as year-over-year comparisons shift. Forecasts for lower oil prices later this year could also reduce inflationary pressure if energy markets stabilize.

Cook added that supply chain improvements may help lower the cost of AI-related components over time. Given these developments, officials determined it was appropriate to leave rates unchanged while monitoring how these factors evolve.

However, she cautioned: "Inflation may become entrenched in price- and wage-setting behavior. While we might be able to afford to wait for longer in a different environment, we do not have that luxury in this one."

Fed Officials Debate Next Policy Move

The latest Federal Open Market Committee meeting concluded with the benchmark rate unchanged, although three policymakers dissented in favor of an immediate rate increase — a notably high number for a committee that typically reaches decisions by broad consensus. The split reflected growing concern among some officials that inflation remains too high.

Recent remarks from several Federal Reserve officials have also indicated a willingness to raise rates if inflation does not continue to moderate. At the same time, Chair Kevin Warsh has avoided providing guidance on the timing of future policy decisions, leaving markets to parse incoming data for clues on the direction of rates.

Bloomberg reported that policymakers remain focused on incoming inflation and labor market data before deciding whether additional tightening is needed.

June's Personal Consumption Expenditures price index — the Federal Reserve's preferred inflation gauge — showed annual inflation at 3.7%, while core inflation, which excludes volatile food and energy costs, measured 3.3%. Both figures remain well above the central bank's long-term objective and have shown only modest improvement over recent months.

Cook also said consumer confidence continues to be affected by elevated prices. She added that widespread predictions of large-scale job losses from artificial intelligence have not yet materialized, although the technology continues to present longer-term uncertainties for the labor market.