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FED: Dallas's Logan Makes Case For Easing With Caution

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Dallas Fed Pres Logan's first comments post-September FOMC suggest that while she openly supports the decision to start cutting rates, she might have preferred a more cautious 25bp move initially. (Speech link here.) And as she puts it regarding future policy moves, "the path ahead is cloudy, not clear".

  • Dot Plot-wise, we'd guess she's in the one-more-25bp-cut camp for 2024 (of which there were 7 members, with 2 above and 10 below), seeing a further 4 25bp cuts next year (to 3.50-3.75%). That puts her among the 5 most hawkish outlooks through 2025 - though Dallas doesn't get an FOMC vote until 2026.
  • Note she supported the decision to cut rates - but not necessarily by that magnitude (contrasting with others who have specifically said they supported the choice to cut 50bp): "I supported the FOMC’s decision last month to begin normalizing the stance of monetary policy by lowering the target range for the fed funds rate. Less-restrictive policy will help avoid cooling the labor market by more than is necessary to bring inflation back to target in a sustainable and timely way."
  • Even as a relatively hawkish FOMC participant, she is using very similar language on the labor market to colleagues across the Hawk-Dove spectrum: noting that while the "labor market remains healthy, it has cooled as well".
  • She's clearly concerned about renewed upside risks to inflation, however, which seems to put her in the minority on the Committee: "while the upside risks to inflation have diminished, they have not vanished. I continue to see a meaningful risk that inflation could get stuck above our 2 percent goal." And she specifically ties this to resilience in aggregate demand, noting in particular the upward revisions to GDI/household savings rates.
  • And while she acknowledges that there is increased risk that the labor market will cool more than the Fed desires, uncertainty with the data and the outlook mean  "I believe the FOMC can best balance the labor market risks for now by normalizing policy gradually—neither waiting too long to act nor moving too quickly and risking going too far."
  • Furthermore, she's concerned about looser financial conditions and their impact on demand/inflation: "Financial conditions have eased notably from a year ago...even if the current assessment of demand is on target, an unwarranted further easing in financial conditions could boost spending and push aggregate demand out of balance with supply."
  • She warns that "the neutral rate may be higher than before the pandemic", which - while that has been expressed by multiple FOMC members - she more clearly ties that into a cautious approach, noting "lowering the policy rate gradually would allow time to judge how restrictive monetary policy may or may not be and reduce the risk of inadvertently boosting inflation by bringing the policy rate below its neutral level".
  • The conclusion is that the Fed "should not rush to reduce the fed funds target to a “normal” or “neutral” level but rather should proceed gradually while monitoring the behavior of financial conditions, consumption, wages and prices".
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Dallas Fed Pres Logan's first comments post-September FOMC suggest that while she openly supports the decision to start cutting rates, she might have preferred a more cautious 25bp move initially. (Speech link here.) And as she puts it regarding future policy moves, "the path ahead is cloudy, not clear".

  • Dot Plot-wise, we'd guess she's in the one-more-25bp-cut camp for 2024 (of which there were 7 members, with 2 above and 10 below), seeing a further 4 25bp cuts next year (to 3.50-3.75%). That puts her among the 5 most hawkish outlooks through 2025 - though Dallas doesn't get an FOMC vote until 2026.
  • Note she supported the decision to cut rates - but not necessarily by that magnitude (contrasting with others who have specifically said they supported the choice to cut 50bp): "I supported the FOMC’s decision last month to begin normalizing the stance of monetary policy by lowering the target range for the fed funds rate. Less-restrictive policy will help avoid cooling the labor market by more than is necessary to bring inflation back to target in a sustainable and timely way."
  • Even as a relatively hawkish FOMC participant, she is using very similar language on the labor market to colleagues across the Hawk-Dove spectrum: noting that while the "labor market remains healthy, it has cooled as well".
  • She's clearly concerned about renewed upside risks to inflation, however, which seems to put her in the minority on the Committee: "while the upside risks to inflation have diminished, they have not vanished. I continue to see a meaningful risk that inflation could get stuck above our 2 percent goal." And she specifically ties this to resilience in aggregate demand, noting in particular the upward revisions to GDI/household savings rates.
  • And while she acknowledges that there is increased risk that the labor market will cool more than the Fed desires, uncertainty with the data and the outlook mean  "I believe the FOMC can best balance the labor market risks for now by normalizing policy gradually—neither waiting too long to act nor moving too quickly and risking going too far."
  • Furthermore, she's concerned about looser financial conditions and their impact on demand/inflation: "Financial conditions have eased notably from a year ago...even if the current assessment of demand is on target, an unwarranted further easing in financial conditions could boost spending and push aggregate demand out of balance with supply."
  • She warns that "the neutral rate may be higher than before the pandemic", which - while that has been expressed by multiple FOMC members - she more clearly ties that into a cautious approach, noting "lowering the policy rate gradually would allow time to judge how restrictive monetary policy may or may not be and reduce the risk of inadvertently boosting inflation by bringing the policy rate below its neutral level".
  • The conclusion is that the Fed "should not rush to reduce the fed funds target to a “normal” or “neutral” level but rather should proceed gradually while monitoring the behavior of financial conditions, consumption, wages and prices".