Fed's Cook: Time nearing to hike rates in smaller steps

Federal Reserve Governor Lisa Cook, who previously said the US central bank is focused on addressing inflation that is "much too high", said inflation remains too high.

However, she said it could soon be time for the US central bank to take its foot off the gas when it comes to its efforts to lower high levels of inflation.

Reuters reported her comments:

"Inflation remains much too high" and "as a result, the Federal Reserve must continue to focus on bringing inflation back down to our 2% target," Cook said in prepared remarks for a speech to the Detroit Economic Club.

"Given the tightening already in the pipeline, I am mindful that monetary policy works with long lags," she said.

As the Fed moves toward an "uncertain" stopping point for its rate rises, "it would be prudent to move in smaller steps," she said, adding that "how far we go, and how long we keep rates restrictive, will depend on observed progress in bringing down inflation."

In her remarks, Cook, one of the Fed's newest governors, said "we have begun to see some improvement in the inflation data," though she added that she "would be cautious about reading too much into one month of relatively favourable data" before deciding the high price pressures that have driven the Fed to act are abating.

Cook said the current pace of wage gains is above levels consistent with the Fed's 2% inflation target. She also said US productivity levels are weak but she hopes they will improve over time, and that the US manufacturing sector is healthy.

US Dollar update

The dollar index, DXY, has fallen to 106.29 on the day from a 20-year high of 114.78 on Sept. 28.  The greenback is on track for its biggest monthly loss since September 2010 as investors look toward the Fed reaching a peak rate early next year.

Ahead of Fed's chairman, Jerome Powell's speech today, the index has reclaimed the 107 level.  Some analysts expect Powell to push back against the notion that a pivot is coming soon given the uncertainty of future jobs and inflation releases.