Dallas Fed President Calls for 'More Restrictive Monetary Policy'

According to Dallas Federal Reserve President Lorie Logan, recent economic news suggests that interest rate hikes need to continue. Logan made the remarks at a Columbia University event on Thursday. She cited two worrisome factors to justify her call for additional restrictive monetary policy:

“I remain very concerned about whether inflation will return to target in a sustainable and timely way. The continuing outlook for above-target inflation and a stronger-than-expected labor market calls for more-restrictive monetary policy.”

Continued restrictive monetary policy is likely

Logan also argued that the Federal Open Market Committee would have been justified if it had raised rates again in June. However, she agreed that the decision to pause increases for one meeting was not unreasonable. As she noted, the FOMC clearly signaled an intent to continue rate increases beyond that June meeting.

 In fact, recently released minutes from that June meeting confirm earlier reports that officials believed more rate hikes would be necessary. Those minutes suggest that sixteen of the eighteen officials at the meeting agreed that rates would need to rise by at least another 25 basis points by the end of 2023.

FOMC officials concluded that they would pause rate hikes to assess the full impact of their previous increases. That cautiousness, combined with uncertainty about economic conditions, prompted the officials to adopt a “wait-and-see” approach in June.

Logan has pointed to the strong labor market and above-target inflation as reasons for additional restrictive monetary policy. She also noted that the economy’s “overall pace of rebalancing” was slower than what experts had forecast. She seemed to dismiss the idea that the economy has not yet absorbed the full impact of the prior rate hikes. “I’m skeptical about the potential for large additional effects from this channel,” she said.