Central Bank Needs at Least Two More Rate Hikes, Dallas Fed President Says
According to Dallas Fed President Lorie Logan, the Federal Reserve needs to raise rates at least two more times to get inflation under control.
Reuters characterized Logan’s remarks as some of the most “explicit rate guidance” offered by a central banker since Fed Chairman Kevin Warsh took the helm in May.
“It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25-basis-point rate increases,” Logan said in remarks prepared for delivery to students at Davidson College, referring to the rate-setting Federal Open Market Committee. “After that, it would make sense in my view to pause and examine economic and financial developments to determine what further action may be appropriate.”
Last week, Logan joined the majority of the FOMC in a 10-2 vote to leave short-term U.S. interest rates in their current 3.75%-4.00% range, even as it said the economy is strong and inflation too high. In September, the FOMC unanimously voted to hike interest rates.
Restrict Nation’s Economy Enough
Reuters said Logan is among the more hawkish of Fed policymakers, and the move isn’t inconsistent with her view that the target rate should be at least half a percentage point higher in order to restrict the nation’s economy enough to get inflation headed back to the Fed’s 2% goal.
“Financial markets have been volatile in response to news on the technology investment outlook and geopolitical developments,” Logan said. “In such an environment, adjusting policy more gradually can help households, businesses and market participants adapt to higher rates and reduce the risk that economic activity deteriorates more sharply than necessary.”
Logan noted that it’s important that the Fed make its policy destination clear. Reuters said that’s a view that contrasts with Warsh’s insistence that the Fed should only deliver such guidance in crisis times.
Fed Monetary Policy
Logan sees financial conditions as delivering a tailwind to economic growth, and she attributes the recent rise in longer-term borrowing costs to an expectation for stronger growth and higher interest rates, Reuters reported.
“The higher market rates are more a message that investors believe monetary policy has work to do than an independent headwind for activity,” she said. Skipping a meeting, she said, does not change the Fed’s policy destination.
“As long as market participants understand the FOMC’s policy plans, the precise timing of each rate increase has little effect on the longer-term rates most borrowers pay,” she said.
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