News: Federal Reserve Governor Outlines 2025 Economy, Threats to Financial Stability

Federal Reserve Governor Lisa Cook in January spoke at the Seventh Conference on Law and Macroeconomics at the University of Michigan Law School in Ann Arbor, outlining her economic outlook for early 2025 and four areas of potential risk.

“Overall, the U.S. economy starts the year in good shape,” Cook said. “Economic growth was quite strong in 2024. Inflation has fallen considerably from its peak two and a half years ago, though it remains somewhat above the Fed's 2% objective. The labor market is solid, with the unemployment rate still relatively low and Americans, on average, bringing home paychecks that are growing faster than inflation.”

She outlined four risk areas she will be monitoring:

• Private credit (which has grown in the U.S. from around $500 billion in 2016 to more than $1.5 trillion at the end of 2023)
• Stablecoins (which could scale quickly, particularly if the stablecoin is supported by access to an existing customer base)
• Cyber threats (which have more than doubled again from 2020 to 2022, and to 2023)
• Artificial intelligence (which can be a source of systemic risk for companies as AIs become more widely used)

Cook favors a cautious approach to future cuts in the federal funds rate.

“The 100 basis points of rate cuts since September have notably reduced the restrictiveness of monetary policy,” she says. “All along, I envisioned moving more quickly in the early stages of our easing campaign and then easing more gradually as the policy rate came closer to neutral. In addition, since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time. Thus, I think we can afford to proceed more cautiously with further cuts.”

To read the full transcript go to www.federalreserve.gov/newsevents/speech/cook20250106a.htm.