OAKLAND, California, Sept 28 (Reuters) - Federal Reserve Governor Lisa Cook said on Monday she expects continued inflationary pressure in coming months stemming from AI-related demand and higher oil prices, though she stopped short of saying more interest rate hikes will be needed.
"The labor market appears to be well positioned to handle an increase in rates," Cook said in remarks prepared for release at a conference on AI and emerging technology in Oakland, California. "Looking ahead, I will consider
what policy rate may be needed to continue to guide inflation down to our target. Of course, the number and magnitude of any future adjustments will be informed by observations of the economy's reaction to our policy actions thus far and the inflation and labor data over the coming months."
The Fed raised its policy rate this month for the first time in three years to help bring inflation back to the US central bank's 2% goal in a "timelier" fashion. Cook joined the unanimous vote in support of the decision.
Fed policymakers penciled in one more rate hike by the end of this year to deal with inflation that has been above the 2% target for more than five years and has been driven upward by rising global energy prices during the now seven-month US-Israeli war with Iran.
Oil prices climbed about 2% on Monday after US President Donald Trump rejected a deal from Iran to reopen the Strait of Hormuz. Financial markets are now pricing in about a 75% chance of a Fed rate hike next month, and a strong probability of a third straight increase at the meeting in December.
Cook did not validate those expectations in her prepared remarks, though she did note that inflation has been "too high for too long" and that total inflation was about 3.8% in the 12 months through August, about double the 2% target.
"Furthermore, in coming months I expect to see continued pressure on inflation from the AI buildout, as discussed today, and from the pass-through of higher oil prices and supply chain disruptions associated with the conflict in the Middle East," she said.
While she expects AI-driven productivity gains will deliver some disinflation over the medium term, Cook said those gains will not come fast enough to offset inflationary pressures this year. The inflation data shows those effects are broadening beyond AI-focused sectors, she said.
Cook's remarks focused primarily on the economic effects of AI, which she sees as a general-purpose technology with transformative potential for the economy.
So far, she said, she sees little evidence that AI is remaking the structure of the labor market, but added that she is "highly attentive" to the possibility it could boost the unemployment rate at least temporarily, a situation the Fed would have limited scope to counter, because a rate cut aimed at helping the labor market could fuel inflation.
(Reporting by Ann Saphir; Editing by Paul Simao)
