Cook Signals Caution Amid Stalled Inflation and Balanced Labor Market

Federal Reserve Governor Lisa D. Cook highlighted that U.S. inflation stubbornly stalled above the central bank's 2 percent target throughout 2025. The personal consumption expenditures (PCE) price index rose an estimated 2.9 percent for the 12 months ending in December, with core inflation at 3 percent.

This plateau is partly attributed to an uptick in core goods prices, reflecting increased tariffs on imported products last year.

Cook noted that while tariff increases should ideally lead to a one-time price rise, uncertainty remains regarding future tariff policy and the duration of their impact.

Concurrently, the labor market stabilized after softening in 2024 and early 2025. The unemployment rate stood at 4.4 percent in December, remaining relatively low.

Layoffs are low, and the number of available jobs relative to unemployed workers is just below 1, indicating a roughly balanced market.

Cook emphasized the imperative of returning inflation to target, warning that prolonged above-target inflation risks entrenchment in expectations.

Governor Cook identified a 'two-speed' or 'K-shaped' economy, where resilient overall growth masks challenges for low- and moderate-income households, evidenced by rising delinquencies and stagnating spending.

She outlined four reasons for persistently low consumer sentiment.

First, households compare current conditions to a recent 'hot' economy.

Second, AI proliferation introduces job market uncertainty.

Third, structural changes like sharply increased housing, education, and childcare costs have outpaced wage gains.

Finally, sustained high inflation over the past five years has exacerbated these cost pressures.

Cook concluded these factors do not signal increased slack addressable by typical demand-side monetary policy, stressing that ensuring price stability is the best response to inflation-related concerns.