Federal Reserve Governor Lisa Cook has adopted a "wait and see" approach regarding future interest rate adjustments, citing persistent inflation and potential upside risks. In a speech at the Economic Club of Miami on Wednesday, Cook emphasized the importance of maintaining the central bank's credibility by ensuring inflation returns to its 2% target in the near future.

Cook's stance comes after the Federal Reserve decided to hold its benchmark interest rate steady at a range of 3.5% to 3.75% the previous week, following three consecutive rate cuts at the end of 2025. This decision reflected an upgraded assessment of the economy and labor market, suggesting no immediate need for further reductions. However, Cook's recent remarks indicate a cautious approach, prioritizing the control of inflation.

"At this time, I see risks as tilted toward higher inflation," Cook stated, signaling a reluctance to support further rate cuts until there is convincing evidence that price pressures are sustainably moving back towards the 2% target. She acknowledged that the previous rate cuts are supporting the labor market, which she views as stable. The unemployment rate, standing at 4.4% in December, remains below the 50-year average that preceded the COVID-19 pandemic.

Despite the relatively healthy labor market, Cook expressed concern that progress on inflation has stalled, with core inflation running around 3% at the end of last year. "Such a plateau is frustrating after seeing significant disinflation in the preceding few years," she noted. While remaining optimistic that the impact of tariffs on goods prices will diminish and allow inflation to decline this year, Cook acknowledged considerable uncertainty surrounding this path, including future tariff policies and the risk of entrenched inflation expectations.

Several factors contribute to the Fed's delicate balancing act. The policy debate within the Federal Open Market Committee (FOMC) remains finely balanced. Some officials advocate for delaying further easing until clearer signs of cooling inflation emerge. Others believe that modest additional cuts could bolster hiring, which has yet to rebound significantly.

Moreover, the Fed's independence has come under scrutiny, particularly following attempts by the previous administration to remove Cook from her position. Although the Supreme Court has yet to issue a final ruling, concerns have been raised that such actions could undermine the central bank's ability to operate independently of political interference.

Adding to the complexity, President Trump is nearing a decision on a successor to Jerome Powell, whose term as chair ends in May. Trump has nominated former Fed Governor Kevin Warsh as the next central bank chair. Trump has consistently advocated for substantial rate cuts, raising concerns about maintaining the central bank's commitment to controlling inflation. Warsh believes that artificial intelligence will be a "significant disinflationary force" and that excessive government spending and money printing are the root causes of inflation.

Given these uncertainties, the Federal Reserve appears poised to maintain its "wait and see" approach, carefully monitoring incoming data and assessing the evolving balance of risks. The central bank's primary focus remains on achieving its dual mandate of maximum employment and stable prices, with a heightened emphasis on ensuring that inflation sustainably returns to its 2% target.