BY Kemi Osukoya | MONETARY POLICY & MARKETS
Federal Reserve Governor Lisa Cook’s warning that the Central Bank may still raise interest rates offers a stark reminder that global conflict, tariffs and the race to build artificial-intelligence infrastructure are no longer distant economic forces. They are showing up in the price of energy, food, housing and everyday life—from major financial markets to households in Anchorage, Alaska.
Speaking days after the Federal Reserve Board kept interest rates unchanged, Cook said she would support an increase if it becomes necessary to return inflation to the Fed’s 2% target.
“My assessment is simple: inflation is just too high,” Cook remarked in her speech. “I can see the risk to the inflation side of the dual mandate higher than the risk to the employment side at this point.”
Her message comes as the global economy confronts a new round of geopolitical uncertainty. Escalating U.S.-Iran tensions and the wider Middle East crisis have strained energy markets and disrupted supply chains, while Russia’s continuing war in Ukraine remains a source of instability for global food, fuel and commodity markets.
The effects are immediate for consumers and businesses: Higher oil prices show up in transport and production costs, while supply-chain disruptions raise the cost of imported goods. A stronger U.S. dollar and higher interest rates make borrowing, including credit cards and loans more expensive for households, companies and governments—particularly in emerging markets that rely on dollar financing.
Cook said energy costs associated with the Middle East conflict have contributed significantly to U.S. inflation. But she also identified tariffs and the expansion of AI-related investment as additional sources of price pressure.
The rapid construction of data centers and demand for chips, high-tech equipment, software and electricity have lifted costs across parts of the economy. “Companies are ramping up capital spending to build out AI and the infrastructure,” Cook said, describing an investment surge that is supporting growth, but also adding to inflation risks.
The Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index, rose 3.7% over the 12 months through June, nearly double the central bank’s target. Core prices, which exclude food and energy, rose 3.3%.
For African economies and other emerging markets already under significant fiscal constraints, the Federal Reserve’s monetary policy stance matters well beyond the U.S. A further increase in U.S. interest rates could strengthen the dollar and increase the cost of servicing external debt. It could also tighten financial conditions for businesses seeking capital, even as countries contend with high import bills for food, fertilizer, fuel and manufactured goods.
Cook said the Federal Reserve Board has reasons to wait before acting. The price effects of earlier tariffs might fade from annual inflation readings, oil prices could decline later in the year and supply chains may adjust to the AI investment boom.
But she made clear that the Fed Board’s patience has limits.
“If I do not see signs of continued disinflation soon, I am prepared to act,” Cook said. “With five years of above-target inflation, the risk grows that higher inflation may become entrenched in price- and wage-setting behavior.”
That concern is playing out at the local level in Anchorage, where the economic recovery has not translated into broad confidence. The city has recovered many of the jobs lost during the pandemic, yet consumer sentiment remains near its COVID-era low.
Anchorage’s recent economic history reflects the broader volatility facing economies around the world. The city endured an oil-price recession, followed by the sharp shock of the pandemic and then a partial recovery. While jobs have returned, residents continue to face the high cost of living, a shrinking working-age population, housing pressures and concerns about public safety and homelessness.
The city’s cost-of-living index rose 5% in one year to 127.9, from 122.8 in 2024, placing average costs about 28% above the benchmark across 250 Alaskan communities, making it the 18th most expensive cities in list of communities across th nation that participated in the survey. That pressure is felt in the everyday expenses that shape household confidence: groceries, medicines, rent, mortgages, childcare, healthcare and transportation.
Cook said this disconnect between economic indicators and public sentiment is increasingly visible across the country where families and businesses remain uneasy about their financial future, even as he U.S. economy continues to grow. Unemployment stood at 4.2% in June, and layoffs remain low.
“Many workers and business leaders have a less favorable outlook on the economy than official statistics indicate,” Cook noted.
In Anchorage, local business leaders point to a similar contradiction. Many businesses expect to perform as well as or better next year, and some plan to expand. Yet they also cite the local economy, labor shortages, population outmigration, housing affordability and political uncertainty as major barriers to growth.
Homelessness and downtown conditions emerged as the most frequently raised concerns in the city’s business survey, while public safety was rated the most important issue affecting business success. These concerns do not appear in national inflation statistics, but they shape whether people choose to invest, hire, relocate or remain in a city.
Cook said the best contribution monetary policy can make is to restore price stability. “The best thing we can do in our goals is to ensure that inflation returns to and stays at target,” she said.
Her remarks underscored the challenge and the increasingly difficult choice facing policymakers: With inflation being driven not only by domestic demand, but by wars, energy shocks, trade policy, supply chains and a global race for technological leadership, The cost of that choice is already being measured in daily life. across the U.S. and throughout the global economy.
The impact, however, is felt locally—at the grocery store, in the housing market, in a small business’s hiring plans and in the confidence of families trying to make their budgets work.
