The nation got some good economic news last week, but Dallas Federal Reserve President Lorie Logan said it may not have been good enough.
In fact, on Thursday she called for “modestly” higher interest rates to win a battle the Fed has been losing for the past five years, according to CNBC.
Logan is a voting member this year on the rate-setting Federal Open Market Committee and she said that inflation is still a major problem for U.S. households that demands action from policymakers. CNBC noted that other Fed officials have expressed a preference for higher rates if inflation metrics don’t improve, but hers is the most specific call for a hike.
“I currently believe modestly higher interest rates would better balance the outlook and risks for the FOMC’s dual mandate goals,” Logan said in prepared remarks for a speech in Houston. “Every month of above-target inflation has compounded the strain on Americans’ budgets.”
Earlier in the week, the Bureau of Labor Statistics reported progress on that front: Consumer prices for June fell 0.4%, the biggest monthly decline since April 2020, while wholesale prices slipped 0.3%. CNBC reported that both gauges benefited from slumping oil prices, though costs in several other key categories, most notably housing, also softened.
Logan noted that there’s more work to do for the Fed to meet its 2% inflation goal.
Despite the monthly decline, consumer prices rose 3.5% from a year ago, while wholesale costs increased 5.5%. CNBC said that inflation has been above the central bank’s target since early 2021.
“One month of relief is not enough. It is time to finish the job of restoring price stability,” Logan said. “In monetary policy as in hockey, you have to skate where the puck is going. Unfortunately, inflation does not appear to be headed sustainably back all the way to 2%.”
Raise Expected in September
Markets expect the FOMC to raise its key overnight borrowing rate by a quarter percentage point later this year, possibly as soon as September, but more likely October, according to the CME Group’s FedWatch tracker of fed funds futures pricing.
The FOMC next meets July 28-29, with traders pricing in just 12.3% odds of a rate increase.
CNBC said that Logan pointed to a number of widely cited gauges as well as alternative measures such as core prices less housing to show that inflation is mired well ahead of the Fed’s target even with the recent slide in energy prices and waning tariff impacts.
“If inflation is not heading all the way to 2 percent on its own, then at least some policy restriction is needed to help get it there,” Logan said. “If higher inflation becomes entrenched, we’d need sharper rate increases to bring it back to target, with a larger cost for the labor market. Better modest restriction now than severe restriction later.”
However, Logan did not say specifically that she would push for an increase at this month’s meeting or quantify how much higher she thinks rates need to go.
NY Fed Chief Says Inflation has Peaked
Earlier, New York Federal Reserve President John Williams said that there are multiple signs that inflation has peaked, allowing the Fed to hold interest rates in place despite market expectations for a hike in coming months.
Williams cited five reasons why he expects the latest price surge has run its course in a speech delivered to business leaders in his home district.
“There are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters,” Williams said.
“I expect overall inflation to decline to around [3.25%] percent by year-end, then continue on a glide path toward our 2% goal in 2027 and land on target in 2028,” he said later.
