Dallas Federal Reserve President Lorie Logan stated on Thursday that despite recent improvements in U.S. inflation data, a significant gap remains to the Fed's 2% inflation target.
She argued that a moderate increase in interest rates would be more conducive to achieving price stability and warned that failing to act promptly now could necessitate more aggressive rate hikes in the future to curb inflation.
Speaking at an event in Houston, Logan, who holds a voting seat on the Federal Open Market Committee (FOMC) this year, noted that persistently high inflation continues to impose a heavy burden on American households, requiring action from the central bank. "At present, I believe a moderate increase in rates would be more helpful in balancing the outlook and risks associated with the Fed's dual mandate. Each month of above-target inflation continues to erode household budgets," she said.
Data released earlier this week showed the U.S. Consumer Price Index fell 0.4% month-over-month in June, the largest monthly decline since April 2020, while the Producer Price Index dropped 0.3%. A decline in energy prices was the primary driver behind the cooling inflation, with price increases for some core components like housing also showing signs of moderation.
However, Logan emphasized that improvement in a single month's data is insufficient to conclude that the inflation problem has been resolved. The figures indicate that U.S. CPI was still up 3.5% year-over-year in June, with PPI rising 5.5%, both significantly above the Fed's 2% target. U.S. inflation has 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, as in hockey, you must skate to where the puck is going. Unfortunately, inflation does not currently appear poised to sustainably return to 2% on its own."
She pointed out that even with recent declines in energy prices and some easing of tariff impacts, both traditional inflation measures and core indicators excluding housing show that inflation remains notably above target.
Logan stated that if inflation cannot return to 2% under its own momentum, the Fed will need to maintain a certain degree of policy restrictiveness. "If high inflation eventually becomes entrenched, more aggressive rate hikes would be required in the future, at a greater cost to the labor market. It is preferable to raise rates moderately now rather than tighten policy significantly later," she said.
Recently, several Fed officials have indicated they would not rule out further policy tightening if inflation fails to show continued improvement. However, compared to other officials, Logan is one of the few policymakers who have explicitly expressed support for moderate rate hikes.
According to the CME FedWatch Tool, markets widely expect the Fed to implement a 25-basis-point rate hike later this year, potentially in September or October. For the next FOMC meeting scheduled for July 28-29, the market currently assigns only about a 12.3% probability of a rate increase.
Logan did not explicitly state whether she would support a rate hike at the July meeting, nor did she specify by how much she believes rates still need to rise.
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