Dallas Federal Reserve Bank President Lori Logan expressed cautious optimism in the ability of current monetary policy to reduce inflation to the desired target of 2% while maintaining the strength of the labor market.
In a speech in Austin, Texas, Logan explained that if economic data confirms this trend over the coming months, “the current policy stance is appropriate and there is no need for further interest rate cuts.”
Logan, who was among the 10 members who voted in January to keep interest rates in the 3.50%-3.75% range, noted that downside risks to the labor market appeared to have “dissipated significantly” after the three interest rate cuts last year, but that these cuts brought with them additional inflationary risks.
She explained that short-term borrowing costs are now within the “neutral” range, which imposes limited restrictions on a strong economy and inflation that remains above the target set nearly five years ago.
Logan expected an improvement in inflation indicators during this year, citing a decrease in upward pressure on tariffs, a slowdown in housing services inflation as a result of a decrease in demand for rentals, and an improvement in the labor market balance, which will mitigate non-residential services inflation.
It also drew attention to some positive indicators such as lower short-term inflation expectations and companies’ expectations of moderate costs and prices.
But at the same time, she expressed growing concern about inflation continuing at high levels compared to the weakness of the labor market, warning of the effects of new tariffs, “active” fiscal policy, and new technologies that may put pressure on prices.
Logan concluded by noting that if inflation declines significantly, but the labor market declines in return, lowering interest rates again may be an appropriate measure. (investing)
