Dallas Fed's Logan wanted to raise rates in June, sees two more hikes this year
Dallas Fed President Lorie Logan said Thursday she wanted to raise rates in June and sees the central bank raising rates twice more this year.
"In my view, it would have been entirely appropriate to raise the federal funds target range at the FOMC's June meeting, consistent with the data we had seen in recent months and the Fed’s dual-mandate goals," Logan said in a speech at Central Bank Research Association Annual Meeting at Columbia University.
"But in casting my vote, I was mindful of several factors," Logan added. "In a challenging and uncertain environment, it can make sense to skip a meeting and move more gradually. [Also], financial conditions matter more for the economy than the precise path of the policy rate."
While the Fed voted unanimously to hold rates steady last policy meeting, Logan joins a group of Fed officials who preferred to raise interest rates another 0.25% last month. A strong labor market, resilient economic growth, and inflation that remains elevated were among the factors cited by several officials arguing for additional policy tightening, minutes from the Fed's June meeting showed on Wednesday.
Along with its policy announcement the Fed released updated economic forecasts that suggest two more rate hikes would be likely this year. Logan said Thursday it's important for the Fed to follow through on its projections.
"Significant unexpected events could always provide a reason to change course," said Logan. "But inflation and the labor market evolving more or less as expected wouldn't really change the outlook. To have confidence that inflation will return to target on an appropriate timetable, we need to see more than some continued very modest rebalancing."
Data from the CME Group on Thursday showed markets pricing in a 92% chance the Fed raises rates by 0.25% on July 26.
Logan said she remains "very concerned" about whether inflation will drop back to the Fed’s 2% goal quickly and sustainably, and said more restrictive monetary policy is likely needed to bring inflation down.
Data out last week showed the Fed's preferred inflation measure, "core" PCE, rising 4.6% over the prior year in May.
And though many Fed officials are still uncertain about whether the economy has felt the full brunt of the central bank's aggressive, Logan thinks there’s been enough time to account for the so-called "lagged effects" of policy at this juncture.
"So, although some sectors of the economy will be slower to respond, we have already had a fair amount of time to see the overall effects of monetary tightening," said Logan. "I'm skeptical about the potential for large additional effects from this channel." Which suggests more action will be needed for the Fed to get its desired result.
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