Dallas Fed President Lorie Logan emphasized that policymakers must maintain current interest rates for an extended period to decisively curb inflation, though she acknowledged potential scenarios requiring earlier rate cuts should inflation or labor markets deteriorate. Speaking Tuesday, Logan stated: "Taken together, these considerations suggest remaining vigilant implies maintaining our current restrictive stance somewhat longer to sustainably return inflation to target—a path consistent with achieving maximum employment even under moderately restrictive policy."
Logan, known for her inflation vigilance throughout her three-year tenure at the Dallas Fed, outlined an alternative possibility where the central bank might need to reduce rates sooner. "Alternatively, some combination of slower inflation and labor market weakening could warrant earlier easing," she cautioned.
The Federal Reserve has held rates steady this year, adopting a "wait-and-see" posture to assess tariff impacts on prices. Policymakers remain divided on future actions. June projections revealed a median forecast among 19 officials for two rate cuts in 2024, though nine officials anticipated only one cut or none—a divergence stemming from differing inflation outlooks linked to tariffs.
Tuesday's CPI data revealed June core inflation rose less than expected, marking the fifth consecutive month of such surprises. Yet the data also indicated businesses are increasingly passing tariff-related costs to consumers. These unexpected trends have shifted perspectives among Fed officials and economists who anticipated worse outcomes.
Logan noted Tuesday's data suggests the Fed's preferred inflation gauge likely accelerated in June. She urged caution against overreacting to transient positive inflation signals, warning: "We’ve been burned by optimistic assessments before, only to see inflation re-accelerate. Sustained lower readings over time would build confidence."
Addressing Fed independence amid frequent criticism from former President Trump urging rate cuts, Logan stressed the long-term consequences of premature easing: "While cutting rates can temporarily boost employment, excessive cuts over time risk an inflationary spiral that ultimately undermines labor market gains. Sustainable economic strength requires long-term policy discipline."
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