Fed's Cook: watching credit conditions in calibrating interest rates

"On the one hand, if tighter financing conditions restrain the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence," Cook said in remarks prepared for delivery. "On the other hand, if data show continued strength in the economy and slower disinflation, we may have more work to do."

The Fed last week lifted the policy rate by a quarter of a percentage point to a 4.75%-5.00% range, and said "some additional policy firming may be appropriate." Economic data had been coming in stronger than expected, with inflation showing signs of accelerating and the labor market tight, feeding a mounting sense among Fed policymakers that more aggressive policy tightening would be needed to bring inflation down to the Fed's 2% goal.

But the collapse of Silicon Valley Bank less than two weeks before the Fed's meeting up-ended that view, and now Cook says the policy outlook needs to balance a focus on economic data with forward-looking analysis. "I am closely watching developments in the banking sector, which have the potential to tighten credit conditions and counteract some of that momentum," Cook said.

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