Rate Increases and Policy Destination
Dallas Fed president Lorie Logan said on Friday the Federal Reserve needs at least two more quarter-point rate rises, while arguing that skipping a meeting would not alter the policy destination. She said moving interest rates gradually can reduce the risk of a sharp economic deterioration and help households and businesses adapt to higher borrowing costs. Logan described the aim as a modestly restrictive stance, and said that making the rate destination clear would allow the economy to adjust while still gaining any benefit from a skip.
Inflation, Economic Conditions, and Policy Tools
She said it was unacceptable that inflation is not heading back towards the Fed’s 2% target, and added that after 50 basis points of hikes a pause would make sense to assess what further action is appropriate. Logan said financial conditions are providing a tailwind, even as long-term rates have risen, and suggested markets are signalling policy still has work to do. She also pointed to strong economic growth, solid consumer spending and a labour market she characterised as balanced, perhaps tightening a bit. The Fed sets monetary policy primarily via interest rates, holds eight meetings a year through the FOMC, and can also use QE and QT to influence financial conditions and the US Dollar (USD).
