MNI: Fed's Logan Says 'Much Too Soon' To Think About Rate Cuts
It will 'soon be appropriate' for the FOMC to decide when to slow QT, Dallas Fed President Lorie Logan says.
It's "much too soon" to consider lowering interest rates and monetary policy may not be as restrictive as many think, Federal Reserve Bank of Dallas President Lorie Logan said Friday, adding she's increasingly concerned about upside inflation risk.
Her comments come on the heels of several Fed officials saying they're in no rush to cut after inflation reports came in firmer than expected in January and February.
"It’s much too soon to think about cutting interest rates. I will need to see more of the uncertainty resolved about which economic path we’re on," Logan said in remarks prepared for a Duke University event in Durham, North Carolina. "And, as always, the FOMC should remain prepared to respond appropriately if inflation stops falling."
"A flexible approach to monetary policy will provide time to continue assessing the data and outlook and make the best choices," she said.
INFLATION FIRM
Recent price data raise the concern that inflation progress will "stall out and fail to follow the forecast path all the way back to 2% in a timely way," Logan said. While seasonality issues could explain firm January data, the February report wasn't great either, she said.
There's also reason to doubt that the stance of monetary policy is as restrictive as most forecasts assume. The median FOMC estimate of the real neutral rate is around 0.6%, but no economic model produces such a low number and surveys of market participants also indicate they expect higher real overnight rates in the long run, she said.
"As I formulate my views on appropriate policy, I’m taking evidence of sustained shifts in the neutral rate into account, alongside all the other evidence on the economic and financial outlook," she said.
On the Fed's balance sheet, Logan said it "will soon be appropriate for the FOMC to decide when to slow — not stop — the runoff of our asset holdings."
A slower pace of QT will provide more time for banks and money market participants to redistribute liquidity and for the FOMC to assess liquidity conditions, she said, characterizing the change as a "technical" decision unrelated to the degree of policy restriction needed to bring inflation back to 2% and keep labor markets healthy.