By Michael S. Derby
NEW YORK Federal Reserve Bank of Dallas President Lorie Logan said Thursday that there was a case for a rate rise at the June policy meeting, in comments that affirmed her view that more rate increases will be needed to cool off a still strong economy.
“It would have been entirely appropriate to raise the federal funds target range at the (Federal Open Market Committee)’s June meeting, consistent with the data we had seen in recent months and the Fed’s dual-mandate goals,” Logan said. But noting “a challenging and uncertain environment,” Logan said “it can make sense to skip a meeting and move more gradually.”
Logan noted that forecasts released at the June FOMC meeting showed an expectation of more increases, and said "it is important for the FOMC to follow through on the signal we sent in June,” adding “two-thirds of FOMC participants projected at least two more rate increases this year.”
“I remain very concerned about whether inflation will return to target in a sustainable and timely way,” Logan said, adding “the continuing outlook for above-target inflation and a stronger-than-expected labor market calls for more-restrictive monetary policy,” the policymaker said.
Logan’s comments came from the text of a speech prepared for delivery before a conference at Columbia University. She is a voting member of the rate-setting Federal Open Market Committee this year.
Logan spoke a day after the release of minutes from the central bank’s June meeting, which offered fresh details on the Fed’s decision to hold rates steady at its policy meeting last month, pausing what had been an aggressive campaign aimed at lowering high levels of inflation.
The meeting minutes showed almost all central bankers favored holding the overnight target rate fixed at between 5% and 5.25% in a bid to see how the cumulative impact of past rate increase were feeding through the economy. Officials were still worried about inflation and flagged a still strong job market, while a minority of policymakers expressed interest in raising rates at the June meeting.
Forecasts from the June FOMC pointed to the possibility of a half percentage point more in rate hikes later this year and Fed officials like central bank chairman Jerome Powell have noted in recent comments the very real prospect that the tightening campaign is not done. Speaking on Wednesday, New York Fed leader John Williams also said it’s likely the Fed will have to raise rates again but he did not say if he favored a hike at the July FOMC meeting.
In her speech, Logan noted that the economy, as shown by the job market and inflation, was stronger than expected in the first half of the year and added, “while labor market indicators have eased, the overall pace of rebalancing remains slower than previously expected.”
Logan also cast doubt on the idea that there’s some wave of past policy action waiting to flow through the economy, saying “I’m skeptical about the potential for large additional effects from this channel.”
The official also said that she’s watching commercial real estate risks but does not see them as particularly threatening. She said that the broader housing market appears to have bottomed out.
Logan also said that she doesn’t see anything tied to the Fed’s balance sheet drawdown affecting the Fed’s rate choices right now, and said the Treasury’s work to rebuild its cash account is unlikely to hit bank reserves, with the cash instead drawn from the Fed's reverse repo facility.
(Reporting by Michael S. Derby; Editing by Nick Zieminski)
