MNI: Fed's Logan Says Rates Could Be On Hold For Some Time
MNI (WASHINGTON) - Federal Reserve Bank of Dallas President Lorie Logan said Thursday the central bank might need to keep interest rates on hold for a while if inflation proves stubborn, and how much lower rates can go will be limited by a neutral rate that is likely higher.
Logan she sees two main paths for Fed policy this year, which will hinge on whether monetary policy is meaningfully restrictive. If inflation rises, it will be a sign monetary policy has more work to do to restore price stability and keep demand in balance with supply so we can sustain price stability, she said.
"I think the possible policy strategies for the FOMC in 2025 boil down to two key alternatives. In some scenarios, it will soon be appropriate to resume reducing the federal funds target range. In other scenarios, we’ll need to hold rates at least at the current level for quite some time," she said in prepared remarks.
But even if inflation comes in close to 2% in coming months, that wouldn’t necessarily allow the central bank to cut rates soon, Logan said. "One aspect of the global higher-rate environment is that the neutral interest rate appears to have moved up—though it’s uncertain exactly how much," she said.
"On-target inflation alongside two quarters of stability in the labor market and demand would strongly suggest that we’re already pretty close to the neutral rate, without much near-term room for further cuts," Logan said at a conference hosted by the Bank for International Settlements. "On the other hand, if the labor market or demand cools further, that could be evidence it’s time to ease." (See: MNI INTERVIEW: Fed Likely On Hold For Most Of 2025-Kroszner)
SUSTAINABLE PRICE STABILITY
The Dallas Fed chief noted "many uncertainties right now beyond the near-term inflation and employment data," including the reconfiguration of global trade patterns and supply chains and volatile financial conditions. She also highlighted that survey measures of inflation uncertainty remain elevated and noted the importance of well-anchored inflation expectations as critical to success in monetary policy.
"To me, the monetary policy implications of these uncertainties generally come down to whether sustainably restoring price stability requires keeping rates at least at the current level or moving lower."
"In choosing a path, we should be guided by the need to maintain well-anchored inflation expectations, which are fundamental in the long run to achieving both sides of the FOMC’s dual mandate for monetary policy," Logan said.