Fed Policy Split: Logan Argues Against Rate Cuts, Prioritizes Inflation Control

The Federal Reserve's stance on interest rates remains divided as Dallas Fed President Lorie Logan continues to voice her opposition to recent rate cuts, arguing that current economic conditions do not justify further reductions. Speaking at a Dallas Fed banking conference, Logan emphasized that the labor market remains "broadly in equilibrium" and does not require immediate intervention, while inflation remains stubbornly above the central bank's 2% target. Her remarks align with her previous stance against the Fed's decision to lower rates by 25 basis points earlier this week, a move she described as unnecessary and potentially detrimental to long-term inflation control, according to an Investing.com report.

Logan, who lacks a voting seat on the Fed's policymaking committee this year, reiterated her skepticism about another rate cut in December unless there is "clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly" in a MarketWatch article. She highlighted that while the labor market has shown signs of softening, unemployment claims and layoffs have remained relatively low, suggesting the economy is not in immediate distress. However, she warned that inflation remains "too high" and is not convincingly trending toward the Fed's target, underscoring the central bank's obligation to prioritize price stability, according to Reuters.

The Fed's recent rate cut, which brought the policy rate to a range of 3.75%-4.00%, was justified by Chair Jerome Powell as a precaution against a further slowdown in the labor market. Logan, however, criticized this approach, arguing that preemptive rate cuts risk undermining the Fed's anti-inflation efforts. She also noted that consumer spending, though slightly above long-run trends, is being fueled by stock market gains and AI-driven business investments, while lower-income households and smaller businesses remain vulnerable, according to a TradingView report.

In addition to her stance on rate cuts, Logan expressed support for ending the Fed's balance sheet runoff, stating that the central bank's balance sheet is now "much closer to normal size." She suggested that if elevated money market rates persist, the Fed may need to resume asset purchases to maintain ample bank reserves, Reuters reported.

Logan's position reflects a broader divide within the Fed's policy committee, with two members dissenting from the recent rate cut decision. While some officials advocate for accommodative policies to support the labor market, others, like Logan, argue for patience to avoid derailing inflation progress. With the December meeting approaching, her comments signal growing skepticism about the need for additional easing, even as Powell leaves the door open for data-dependent adjustments, as noted by MarketWatch.