Fed’s exec warns of more rate hikes

Lorie Logan, President of the Federal Reserve Bank of Dallas, stated on Thursday that there was a rationale for a rate hike at the June policy meeting. She affirmed her belief that additional rate increases would be necessary to cool down the still robust economy.

Logan acknowledged that raising the federal funds target range would have been appropriate based on the available data and the Federal Reserve’s dual-mandate goals. However, she emphasised the importance of considering the challenging and uncertain environment, suggesting that skipping a meeting and adopting a more gradual approach could be sensible.

During the June Federal Open Market Committee (FOMC) meeting, forecasts were released indicating an expectation of further rate increases. Logan stressed the significance of following through on the signal sent in June, with two-thirds of FOMC participants projecting at least two more rate hikes this year.

Expressing concern about the potential sustainability and timeliness of inflation returning to target, Logan highlighted the persistent outlook for inflation exceeding the target and the unexpectedly strong labor market. Consequently, she advocated for a more restrictive monetary policy.

Logan’s comments were part of a prepared speech delivered at a conference held at Columbia University. As a voting member of the FOMC this year, her insights come in the wake of the release of minutes from the central bank’s June meeting. The minutes provided further details on the decision to maintain rates at the last policy meeting, pausing the aggressive campaign aimed at curbing high levels of inflation.

The meeting minutes revealed that almost all central bankers supported holding the overnight target rate steady to assess the cumulative impact of previous rate hikes on the economy. While inflation and a robust job market remained concerns, a minority of policymakers expressed interest in raising rates in June.

Forecasts from the June FOMC indicated the possibility of additional rate hikes later this year, potentially amounting to half a percentage point. Federal Reserve officials, including Chairman Jerome Powell, have acknowledged the likelihood of ongoing tightening measures. New York Fed leader John Williams also indicated the likelihood of future rate hikes but did not specify whether he favoured a hike at the July FOMC meeting.

In her speech, Logan acknowledged that the economy had shown greater strength than expected in the first half of the year, as evidenced by the job market and inflation. However, she noted that the overall pace of rebalancing remained slower than previously anticipated, even though labor market indicators had eased.

Regarding commercial real estate risks, Logan stated that she was monitoring the situation but did not view it as particularly threatening. She also observed that the broader housing market seemed to have reached a bottom.

Logan further stated that she did not see the Fed’s balance sheet drawdown affecting rate decisions at present. Additionally, she explained that the Treasury’s efforts to rebuild its cash account were unlikely to impact bank reserves, as the cash would be drawn from the Fed’s reverse repo facility.