Fed’s Logan says it’s ‘too early’ to consider rate cut

United States Federal Reserve Dallas bank president Lori Logan says it’s too early to consider lower interest ratesciting recent high inflation data and signs that borrowing costs may not be as hampering the economy as previously thought.

Logan, whose comments were closely watched by investors because she previously managed the central bank’s asset portfolio at the New York Fed, said she was increasingly concerned that inflation progress might stall.

“Given the risks, I think it’s too early to think about cutting rates,” the Dallas governor said Friday in a speech prepared for an event at Duke University. “I need to see more about where the economy is going. Certainty is settled.” That’s the path we’re on. “

She added that Fed officials “should be prepared to respond appropriately if inflation stops falling.”

Federal Reserve Governor Michelle Bowman also expressed concern on Friday about potential upside risks to inflation. She still expected price pressures to cool further while interest rates remained at current levels, but reiterated that it was “not yet” the time to lower borrowing costs.

Logan’s comments indicate that she is among a large group of policymakers who expect two or fewer rate cuts in 2024.She spoke hours after government data showed U.S. employment rises Growth in March was the highest in nearly a year, and the unemployment rate fell.

“There’s no urgency now. We have time to wait and look at the data that’s coming out and see how financial conditions are going,” Logan said during a Q&A with Ellen Mead, a Duke University professor and former senior adviser to the Federal Reserve Board of Governors. is evolving. “

Lateral movement

Federal Reserve officials kept interest rates unchanged at their March meeting in a range of 5.25% to 5.5%, a high in more than two decades. Most policymakers say they want to see more data to be confident that inflation can return to level 2 on a sustainable basis. % Target.

“To be clear, the key risk is not that inflation could rise – although monetary policymakers must always be wary of that outcome – but that inflation will stall and fail to follow the forecast path all the way back to 2% in time. way,” Logan said.

Prices rose faster than expected in January and February, and some officials are growing concerned that inflationary progress is tapering off. Although the median of 19 policymakers still expected three rate cuts this year in economic forecasts released after last month’s Fed meeting, nine policymakers still expected three rate cuts this year. Participants saw two or fewer reductions.

Atlanta Fed President Raphael Bostic said Wednesday he expected a rate cut In the fourth quarter of this year, Minneapolis Fed President Neel Kashkari said Probably not necessary If inflation stops cooling and the economy remains strong, it could lower borrowing costs.

“If we continue to see inflation move sideways, then I would question whether we need to cut interest rates,” Kashkari said on Thursday.

neutral interest rate

Inflation data aside, Logan said she worries monetary policy may not hinder the economy as much as most forecasts assume. That could mean the so-called neutral interest rate, which neither slows nor stimulates the economy, would be higher.

“There is growing economic and financial evidence that the long-term neutral rate may have moved higher,” she said.

Bowman also pointed out that it is “very likely” that the neutral interest rate will be higher than before the epidemic.

“If this is the case, fewer rate cuts will ultimately be appropriate to return our monetary policy stance to neutral,” Bowman said.

Logan added that uncertainties in measuring factors such as the neutral interest rate and other economic developments, including a surge in immigration that could contribute to the country’s output, meant it was now more useful to focus on inflation data rather than employment data.

Payslip swelling Government data showed on Friday that 303,000 new people were added in March, beating all expectations. The unemployment rate fell slightly to 3.8%, wages increased significantly, and labor force participation increased, highlighting the enduring strength of the labor market.

balance sheet

Logan also reiterated that the central bank should probably start slowing the pace of off-balance sheet asset maturities as soon as possible. Policymakers discussed a potential slowdown at their March meeting, and some Fed watchers expect the process to begin in 2019. in the coming months.

Logan said the Fed may lower the cap on the number of Treasury securities it can remove from its balance sheet each month while keeping the cap on mortgage-backed securities unchanged.

“I don’t think we should really change the mortgage cap because keeping it would send a signal that we’re moving toward a Treasury-heavy portfolio,” Logan said. “So my sense is, we’re talking about that. What’s important is reducing the limit on the national debt and slowing the rate of national debt runoff.”

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