Dallas Fed's Logan Signals Rate Cuts Require US Labor Market Cooling

The Dallas Federal Reserve Bank President, Lorie K. Logan, has indicated that the U.S. labor market needs to cool down before further interest rate cuts can be considered. In a speech delivered on November 13, 2024, Logan emphasized the need for a cautious approach to monetary policy, comparing it to a ship captain navigating shallow waters. She suggested that the Fed should proceed gradually with rate cuts to avoid inadvertently boosting inflation.



Logan's remarks come as the Federal Reserve has been reducing interest rates to combat high inflation. The Fed has already cut rates by 75 basis points over the last two months, bringing the policy rate to the 4.50%-4.75% range. However, Logan warned that if the Fed cuts too far past the neutral rate, inflation could reaccelerate, and the Fed might need to reverse direction.

The Dallas Fed President highlighted several indicators of labor market cooling, including the Job Openings and Labor Turnover Survey (JOLTS) data, which showed a loss of over one-half million job openings in December 2024. She also mentioned real-time data from Indeed Hiring Lab, which showed that advertised job postings have been flat since late November 2024. Additionally, Logan pointed out that job openings were flat in the public sector and fell to the lowest level since April 2020 in the construction industry.

Logan's cautious approach to rate cuts aims to balance the risks of reigniting inflation and cooling the labor market too aggressively. By proceeding gradually, the Fed can monitor financial conditions, consumption, wages, and prices, ensuring that the labor market is not cooled too aggressively while avoiding the risk of inadvertently boosting inflation by cutting too far past the neutral rate.

In conclusion, Dallas Fed President Lorie K. Logan has signaled that further interest rate cuts require a cooling in the U.S. labor market. Her cautious approach to monetary policy aims to balance the risks of reigniting inflation and cooling the labor market too aggressively. As the Fed continues to monitor economic data and financial conditions, it will be crucial to assess the appropriate pace and magnitude of future rate cuts to achieve its dual-mandate goals of price stability and maximum employment.