Investing.com -- Federal Reserve Governor Lisa Cook said Wednesday that the central bank should keep short-term interest rates unchanged for now but stands ready to raise them if inflation does not ease as expected.

Cook told a policy forum on artificial intelligence at Stanford's Institute for Economic Policy Research that she sees risks to both sides of the Fed's mandate and believes holding rates steady is the right approach from a risk-management perspective.

Inflation is moving in the wrong direction, Cook said, driven by last year's tariffs, oil prices that have jumped since the Iran war began on February 28, and increased demand for chips and software alongside upward wage pressure on construction workers as AI data center investment accelerates.

While she expects inflation to decline in coming months without rate increases, Cook expressed concern that five years of inflation above the Fed's 2% target could become embedded in price and wage-setting behavior.

"The risks remain tilted toward higher inflation," Cook said. "I am prepared to raise rates, if the expected disinflation does not appear in a timely manner."

Cook, whom President Donald Trump attempted to remove last year in a case now before the Supreme Court, voted with the majority at the Fed last month to maintain the policy rate in the 3.50%-3.75% range.

Her willingness to consider a rate hike presents a potential challenge for new Fed Chair Kevin Warsh, whom Trump appointed with expectations he would lower interest rates once the Iran war ends and energy prices ease. Several other Fed policymakers have also indicated a rate hike could be necessary.

Cook said she is optimistic that rapid corporate adoption of artificial intelligence will boost economic growth and productivity, but warned it could cause job losses before creating new positions, posing a downside risk to an otherwise stable labor market.

She added that she believes the labor market will remain stable without rate cuts, though she would be prepared to lower rates if the job market weakens. The unemployment rate stood at 4.3% in April.