Dallas Federal Reserve President Lorie Logan stated on Thursday that despite recent improvements in U.S. inflation data, there remains a significant gap to achieving the Fed's 2% inflation target. She argued that moderately increasing interest rates would be more conducive to achieving price stability and warned that failing to act now could necessitate more aggressive rate hikes in the future to curb inflation.
Speaking in Houston as an official with a vote on the Federal Open Market Committee (FOMC) this year, Logan emphasized that persistently above-target inflation continues to place a heavy burden on American households, necessitating action from the Fed.
"I currently believe that moderately increasing interest rates would be more helpful in balancing the prospects and risks facing the Fed's dual mandate. Each month of above-target inflation continues to erode the budgets of American families," she said.
Data released earlier this week showed that the U.S. Consumer Price Index (CPI) fell 0.4% month-over-month in June, the largest monthly decline since April 2020, while the Producer Price Index (PPI) fell 0.3% month-over-month. The decline in energy prices was a primary driver of the cooling inflation, with price increases for some core components like housing also slowing.
However, Logan contends that improvement in a single month's data is insufficient to prove the inflation problem has been resolved. The data shows U.S. CPI was still up 3.5% year-over-year in June, and PPI was up 5.5% year-over-year, both significantly above the Fed's 2% target, with U.S. inflation having remained above target since early 2021.
"One month of improvement is far from enough. It is time to complete the task of restoring price stability," Logan stated. "In monetary policy, just like in hockey, you have to skate to where the puck is going to be. Unfortunately, inflation does not currently appear likely to sustainably return to 2% on its own."
She pointed out that even with recent declines in energy prices and some easing of tariff effects, both traditional inflation measures and core indicators excluding housing show U.S. inflation remains notably above target.
Logan indicated that if inflation cannot return to 2% on its own, the Federal Reserve will need to maintain a certain degree of policy restrictiveness. "If high inflation ultimately becomes entrenched, then more aggressive rate hikes will be necessary in the future, at which point the labor market would pay a greater price. Rather than tightening policy sharply later, it is better to moderately increase rates now," she explained.
Recently, several Fed officials have suggested that if inflation does not continue to improve, further monetary policy tightening cannot be ruled out. However, compared to other officials, Logan is currently one of the few policymakers explicitly expressing support for moderate rate increases.
According to the CME FedWatch Tool, markets widely anticipate the Fed will raise rates by 25 basis points later this year, potentially in September or October. For the next FOMC meeting on July 28-29, the market-implied probability of a rate hike is only about 12.3%.
Logan did not explicitly state whether she would support a rate hike at the July meeting, nor did she specify how much further she believes rates need to rise.
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