Inflation came down a somewhat in June, but that hasn't changed Dallas Federal Reserve President Lorie Logan's mind about the need to raise interest rates.
In prepared remarks on Thursday, Logan said she currently believes that "modestly" higher interest rates would generate a better balance between economic risks and the Fed's mandates to stabilize prices and maximize employment.
"Inflation has been too high, for too long, and does not appear to be on track all the way back to 2%. And the inflation risks are to the upside, " said Logan, a current voting member of the Fed's Federal Open Markets Committee.
Logan pointed out that over the 12 months through May, the personal consumption expenditures (PCE) inflation rate, the Fed's official inflation benchmark, was 4.1%. And, while the June consumer price index (CPI) showed that inflation cooled drastically to 3.5% from May's 4.2% year-over-year pace, that's not enough of a drop to provide comfort.
"One month of relief is not enough. It is time to finish the job of restoring price stability," Logan said.
The details of June CPI data do provide some hope that inflation could return to 2% without intervention. Core goods prices fell, services inflation moderated, and housing costs decreased. If these trends continue, overall inflation could fall further. But Logan says that outcome is far from guaranteed.
"It relies on avoiding further price pressures from energy shocks in the near term and from strengthening demand in the medium term. For now, it is more a hope than a likelihood," Logan said.
Tariffs and the ongoing conflict in the Middle East have raised inflation over the past 15 months. Logan believes that if those shocks fade, inflation will come down somewhat. But she calculates that, without policy intervention, inflation appears to be heading toward the mid 2% range -- not all the way back to 2%.
That's due, in part, to the fact that the investment surge in artificial intelligence could trigger price increases. "That's happening already in a few narrow categories, as you know if you've had occasion to buy computer chips recently. The risk is that the pressures broaden as AI demand touches construction, power generation, and other sectors," Logan noted.
Strong consumer spending, soaring corporate profits, and accommodative financial conditions also continue to drive economic activity. Logan says these conditions encourage consumption, especially by wealthier households. That demand, in turn, helps keep pressure on prices.
"The fact that inflation has been high for a long time, or that it dipped last month, doesn't determine what monetary policy needs to do now. Policy takes time to work its way through the economy," Logan said.
What matters, she said, is where inflation is headed and, unfortunately, the most plausible outcome does not have price growth sustainably cooling all the way to 2%.
Write to Megan Leonhardt at megan.leonhardt@barrons.com
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(END) Dow Jones Newswires
July 16, 2026 13:36 ET (17:36 GMT)
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