Dallas Fed President Logan Advocates for Extended High Interest Rates to Tame Inflation

Dallas Fed President and CEO Lorie Logan has emphasized the importance of maintaining high interest rates to fully address inflation. Speaking on Tuesday, July 15, Logan stated that monetary policy must remain tight for an extended period to bring inflation back to its target levels. She acknowledged that while high interest rates could potentially weaken the labor market, they could still maintain high levels of employment with just a slightly restrictive policy.

Logan has been particularly cautious about inflation issues during her tenure as the Federal Reserve Bank of Dallas’s CEO. She recently suggested that in a scenario where inflation is lower and the job market is weakening, the bank might need to lower interest rates sooner than anticipated. This perspective was shared during an event in San Antonio, where she highlighted the potential need for lower interest rates in such a mixed economic environment.

Federal officers have kept interest rates unchanged as they assess the impact of Trump’s tariff policies on prices. The decision-making process for the remainder of the year has been challenging for lawmakers, with varying opinions on the number of rate cuts expected. In June, a median estimation revealed that nineteen officers anticipated two rate cuts for the year, while the remaining nine expected one rate cut or no rate cut at all. This division in forecasts was largely due to differing expectations about the effects of Trump’s tariff policies on inflation.

Data released on Tuesday, July 15, showed that the basic price increase in the previous month was smaller than expected, marking an unexpected trend for the fifth consecutive month. However, there was a prospect that companies were increasingly passing on some of the costs from tariffs to customers. Logan commented on this data, warning against relying heavily on brief positive inflation news, as past instances of such optimism have been followed by rising inflation. She emphasized the need for sustained low inflation to be fully convinced that the situation is under control.

Logan also addressed concerns about the independence of federal officers, a topic that has been emphasized by other officers recently. Frequent criticism and requests from the US President for lower interest rates have brought this issue to the forefront. Logan explained that while a central bank can boost jobs in the short term by lowering interest rates, doing so excessively could increase prices and negate the benefits of a strong job market. Therefore, she cautioned that a central bank must consider its decisions carefully to maintain a healthy economy in the long run.

Despite the challenges, this year’s qualitative data has been encouraging for federal officers and economic experts who had earlier anticipated much worse results. Logan’s stance on maintaining high interest rates reflects her commitment to addressing inflation comprehensively, even as she acknowledges the potential need for adjustments in certain economic scenarios.