Federal Reserve Gov. Lisa Cook said Jan. 6 that the central bank can “cautiously” move forward with rate cuts and spoke about several areas that she said bring financial vulnerabilities, including private credit and stablecoins.
The Federal Open Market Committee cut rates at its past three meetings, starting with a half-point cut in September and two quarter-point cuts in November and December.
At its December meeting, the FOMC lowered the federal funds rate to a range of 4.25% to 4.5%, though the committee adjusted its median projection rate for the end of 2025 to 3.9%, up from a projected 3.4% in September.
Speaking at the University of Michigan Law School, Cook said Jan. 6 that she thinks it will likely be “appropriate to move the policy rate toward a more neutral stance,” but she always “envisioned moving more quickly in the early stages of (the Fed’s) easing cycle and then easing more gradually as the policy rate came closer to neutral.”
“Since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at the time,” Cook said. “Thus, I think we can afford to proceed more cautiously with further cuts.”
Market participants predict there is a 91% chance the committee will hold rates steady at its next two-day meeting ending Jan. 29, according to the CME FedWatch Tool that tracks 30-day Fed funds futures prices.
Separate from monetary policy, Cook also said she is monitoring several areas that could pose risks to financial stability.
One of those areas is private credit, as “opacity and complexity can obscure buildups of operating leverage,” and such vulnerabilities can be exacerbated by interconnections, such as overlapping management of private credit and private equity, Cook said.
Stablecoins — digital assets pegged to another asset, such as the dollar — are “structurally vulnerable to runs,” Cook contended, and “if a run on a large stablecoin were to occur, liquidation of the assets backing the stablecoin could be disruptive, especially if those assets were linked to other funding markets, like commercial paper or certificates of deposit.”
Cook also said she is focused on monitoring the risks from cybersecurity and artificial intelligence.
