Fed’s Logan: can skip Sept rate hike, but ‘there is work left to do’

Federal Reserve Bank of Dallas President Lorie Logan walks to the opening dinner of the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, U.S., Aug 24, 2023. REUTERS/Ann Saphir/File photo

Dallas Federal Reserve Bank President Lorie Logan on Thursday said that while it “could be appropriate” to skip an interest-rate increase at the U.S. central bank’s upcoming meeting, more policy tightening will likely be needed to get inflation down to 2 percent in a timely way.

“Forecasts are inherently uncertain. My base case, though, is that there is work left to do,” she said in remarks prepared for delivery to the Dallas Business Club at Southern Methodist University. “After the unacceptably rapid price increases of the past several years, I’m not yet convinced that we’ve extinguished excess inflation.”

The Fed has raised its policy rate a total of 5.25 percent points since March 2022 in a battle against inflation that at its peak last year hit 7 percent by the Fed’s preferred measure, the personal consumption expenditures price index.

Inflation has since slowed, to 3.3 percent in July, and the Fed has dialed down the pace of its rate hikes as well, even skipping a rate increase at its June meeting before delivering its most recent quarter-point hike in July, bringing the target range for the policy rate to 5.25 percent-5.5 percent.

“Another skip could be appropriate when we meet later this month,” Logan said, referring to the Fed’s upcoming Sept. 19-20 meeting. “But skipping does not imply stopping.”

Lower inflation is “encouraging” but it isn’t necessarily low enough, she said, especially with labor markets still strong — unemployment is 3.8 percent and there are still 1.5 jobs for every job seeker.

And stronger economic growth — retail sales and consumer spending came in high in July, and housing construction has rebounded after slowing earlier this year — also puts potential upward pressure on prices.

“I believe we must proceed gradually, weighing the risk that inflation will be too high against the risk of dampening the economy too much,” she said. “In coming months, further evaluation of the data and outlook could confirm that we need to do more to extinguish inflation.”