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Fed Cuts Guidance, Cook Signals Rate Hike Over 3.7% Inflation

8/6/2026

Summary

Cook Eyes Rate Hike

Fed Governor Lisa Cook said she is ready to raise the short-term rate if inflation stays high.
Cook warned that five years of inflation above 2% raise the risk of entrenched price- and wage-setting, citing June’s personal-consumption-expenditures (PCE) index at 3.7% YoY.
She said risks now favor price stability over employment, while markets view September as a possible hike window but give higher odds to an October move.

Summary

Warsh Ends Guidance

Federal Reserve Chair Kevin Warsh dropped forward guidance and created five communication task forces with recommendations due by end-2026.
Minneapolis Federal Reserve President Neel Kashkari dissented, urging a hike and blaming inflation on Iran-war supply shocks and AI-driven demand, noting reaction-function briefings let markets infer policy.
Philadelphia Federal Reserve President Anna Paulson called rates mildly restrictive and voted to hold, the first ‘no’ vote under Warsh.

History

Historical Context

In response to double-digit inflation that hit 13.5 % in 1980, Paul Volcker, appointed Fed chair in August 1979, drove the federal funds rate to a 20 % peak by June 1981, triggering the 1980-82 recession but lowering CPI to 3.2 % by 1983. Today’s policymakers—including Governor Lisa Cook and Chair Kevin Warsh—cite that “Volcker shock” as a template while debating hikes as PCE inflation sits near 3.7 %.

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Cook Eyes Rate Hike

Fed Governor Lisa Cook said she is ready to raise the short-term rate if inflation stays high.
Cook warned that five years of inflation above 2% raise the risk of entrenched price- and wage-setting, citing June’s personal-consumption-expenditures (PCE) index at 3.7% YoY.
She said risks now favor price stability over employment, while markets view September as a possible hike window but give higher odds to an October move.

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