Federal Reserve Governor Lisa Cook signaled a cautious "wait and see" approach to monetary policy on Wednesday, describing current interest rates as only "mildly restrictive" while expressing concern over a "K-shaped" economic divergence that is leaving low-income families behind.
Policy Pause And Inflation Hurdles
Speaking at the Economic Club of Miami, Cook supported the Federal Open Market Committee's (FOMC) recent decision to hold the policy rate steady.
She noted that while significant disinflation occurred between 2022 and 2024, progress essentially stalled in 2025. Personal consumption expenditures (PCE) inflation ended last year at an estimated 2.9%, remaining stubbornly above the Fed's 2% target.
Cook attributed much of the recent price pressure to a "notable uptick" in core goods prices following last year's tariff increases.
"Until I see stronger evidence that inflation is moving sustainably back down to target, that is where my focus will be," Cook stated, emphasizing that the Fed must maintain credibility to prevent higher inflation from becoming entrenched in expectations.
The 'Two-Speed' Economy
Despite solid top-line GDP growth of 4.4% in the third quarter of 2025, Cook warned of a growing disconnect between macroeconomic data and the lived experience of vulnerable households.
She highlighted a "two-speed" or "K-shaped" economy where higher-income spending remains robust while low- and moderate-income families face rising delinquencies and stagnant spending.
Cook noted that Black and youth unemployment rates have risen since last spring, mirroring broader financial strains.
This divergence, coupled with decades-long increases in the costs of housing, healthcare, and childcare, has contributed to lower consumer sentiment than typical for a "solid" economy.
Looking Ahead
While acknowledging risks to the labor market-which saw unemployment reach 4.4% in December-Cook remains optimistic that the transition toward artificial intelligence (AI) could eventually boost productivity and real wages.
For now, however, she views the risks as tilted toward higher inflation, justifying a period of policy stability.
What Does Wall Street Expect From Next Fed Meeting?
The CME Group's FedWatch tool's projections show markets pricing a 90.1% likelihood of the Federal Reserve leaving the current interest rates unchanged in March.
So far in 2026, the benchmark indices have been mixed. While the S&P 500 index and the Dow Jones index were up 0.35% and 2.31%, respectively, the Nasdaq 100 index was down 1.25%. Meanwhile, the small-cap index, Russell 2000, outperformed with 4.64% returns.
On Wednesday, the SPDR S&P 500 ETF Trust
