By Megan Leonhardt
Yet another Federal Reserve official has warned that the central bank may need to move to raise interest rates to combat rising inflation before it becomes entrenched.
In remarks at the University of Texas at El Paso on Wednesday, Dallas Fed president Lorie Logan said she believes it's taking too long for inflation to return to the central bank's 2% target.
The personal consumption expenditures price index rose by 3.8% in May, while the core measure, which excludes food and energy prices, gained 3.3% year over year.
"To me, the risks are tilted more on the inflation side," Logan said, calling out the large disruption that the U.S. has experienced in the wake of the Iran war. Logan said she's really focused on the length of time the Strait of Hormuz remains bottlenecked and how long it takes to recover oil production.
"I'm increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability," said Logan, who is a current voting member of the Federal Open Market Committee. She was one of three Fed officials who voted to support the FOMC's decision to keep interest rates steady in April, but dissented from the inclusion of an easing bias in the statement.
Logan said that not only is inflation elevated and on the rise, U.S. economic activity is solid and corporate earnings have been "going gangbusters." That, she added, indicates that monetary policy is not restraining the economy. As a result, the Fed may need to consider taking steps to dampen demand in an effort to staunch rising inflation.
"I'm just not sure that policy is very restrictive. It's to me, it looks neutral, or perhaps even a bit loose," Logan said. To get inflation back to 2%, Logan said it's looking like the Fed will need to put at least mildly restrictive policy in place to finish the job.
Logan noted that she, like the newly sworn-in Fed chairman Kevin Warsh, tends to favor inflation gauges that strip out volatile categories or unusually large price swings to get a sense of where overall inflation is heading. That includes the Dallas Fed's trimmed mean PCE inflation rate, which sets aside the most extreme high and low price changes each month. The Dallas trimmed mean gauge rose by just 2.3% in May.
While the trimmed mean usually sends a reliable signal about where overall inflation will trend, Logan said it's not as trustworthy at the moment. Logan noted her staff's research cautions against putting too much stock in low readings of the trimmed mean.
"A change in the mix of price increases and decreases is causing the trim mean to drop too many price increases. And that can pull the trim mean below the underlying trend in inflation," Logan said. "This technical factor currently has less influence on another measure that sets aside extreme price changes."
Looking at other inflation gauges is therefore helpful: Even if they don't uniformly show the same pace, they all show elevated price growth. The Cleveland Fed's median PCE inflation rate calculation, which ranks the components of PCE inflation and picks the one in the middle, measured 2.8% year over year in April. The New York Fed's multivariate core trend model, which uses statistical techniques to filter out noise, measured 4% percent in April.
Taking all measures, Logan said it appears that inflation is trending to the mid-2% range, but still not all the way back to Fed's 2% target.
Logan's caution around relying on Dallas' trimmed mean echoed remarks from Cleveland Fed president Beth Hammack on Tuesday, who said that policymakers need to look at multiple inflation gauges to try and determine where inflation is trending -- especially when the economy is shifting.
"I don't think we have the luxury of picking just one and staying maniacally focused on it because it could be that you pick the wrong one and then you're making bad decisions," Hammack said. "Ignoring those tails could mean that you're missing out on some of that bigger picture of what's happening."
The most important reason to bring inflation back to target is simply that the U.S. economy benefits from price stability, Logan says. But in addition, above-target inflation can become entrenched if it persists too long.
Write to Megan Leonhardt at megan.leonhardt@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 03, 2026 17:50 ET (21:50 GMT)
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