Finance

Fed Governor Lisa Cook sees tariffs raising inflation and complicating rate policy

Published

3 days ago

June 3, 2025

Lisa Cook, governor of the US Federal Reserve, speaks during a Fed Listens event in Washington, DC, US, on Friday, March 22, 2024.

Al Drago | Bloomberg | Getty Images

Federal Reserve Governor Lisa Cook expressed concern Tuesday with the progress on inflation, saying recent lower readings could reverse after tariffs work their way through the economy.

In addition, Cook said she expects President Donald Trump’s moves on trade policy could take a toll on the labor market, though she noted that the economy for now is in relatively good shape.

“I do not express views on the Administration’s policies. But I do study the economic implications, which appear to be increasing the likelihood of both higher inflation and labor-market cooling,” the policymaker said in a speech to the Council of Foreign Relations in New York.

On inflation, Cook noted that progress has been made, with core inflation at 2.5% and headline at 2.1% in April, according to a report last week that uses the Fed’s preferred measure.

However, economists largely expect the tariffs to push costs higher. Fed officials generally view tariffs as one-off occurrences for prices, but the broad range of the Trump levies could change the equation.

“Price increases tied to changes in trade policy may make it difficult to achieve further progress in the near term,” Cook said. “The recent post-pandemic experience with high inflation could make firms more willing to raise prices and consumers more likely to expect high inflation to persist.”

Indeed, a survey-based measure of inflation points to a significant spike over the next year. Market-based measures, however, indicate more muted expectations further out.

Cook’s comments come two weeks ahead of the Fed’s next policy meeting on June 17-18. Market expectations overwhelmingly indicate the central bank will be on hold again regarding interest rates, and most statements from policymakers since the last meeting back that up. Traders expect the next Fed cut to come in September.

Cook did not specify when she thinks the Fed can ease again, saying that current policy is set in a place where she and her colleagues can respond to threats on either side of the Fed’s mandate for full employment and low inflation.

“I see the U.S. economy as still being in a solid position, but heightened uncertainty poses risks to both price stability and unemployment,” she said. “When making decisions, I think it has been valuable to remain a student of economic history. Our recent past has provided some useful lessons for decision-making during periods of high uncertainty and elevated risks to our dual-mandate goals.”

Earlier in the day, Atlanta Fed President Raphael Bostic said he expects just one rate cut this year as “most of the [inflation] measures are still flashing red.”

However, in a speech over the weekend, Governor Christopher Waller said he expects tariffs to be on the lower end of expectations, with impacts in the second half of the year that nonetheless could allow the Fed to enact “good news” rate cuts before the end of 2025.

Don’t miss these insights from CNBC PRO

Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

37 minutes ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

3 hours ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”