Dallas Federal Reserve President Laurie Logan said it's time to consider cutting interest rates, citing recent high inflation rates and signs that borrowing costs may not be holding back the economy as much as previously thought. He said it was too early.
Mr. Logan said he was increasingly concerned that inflation could stall and that price increases would not settle “in a timely manner” to the 2% interest rate that authorities consider the sweet spot for a healthy economy. Stated.
“Given these risks, I think it is premature to consider cutting rates,” the Dallas leader said Friday in prepared remarks for an event at Duke University. “We will need to see further uncertainty removed about what economic path we are on.”
He added that Fed officials “should remain prepared to respond appropriately if inflation stops declining.”
The comment suggests Mr. Logan is one of a significant number of policymakers who expect two or fewer rate cuts in 2024. His remarks came hours after government data showed U.S. payrolls rose by the most in nearly a year in March, and the unemployment rate fell.
Fed officials kept interest rates unchanged at a range of 5.25% to 5.5% at their March meeting, the highest level in more than 20 years. Most policymakers said they wanted to see more data to be confident that inflation was sustainably returning to the 2% target.
“To be clear, the key risk is not the possibility that inflation will rise, and monetary policy makers must remain vigilant to that outcome, but rather that inflation stalls and rises to 2%. “The inability to follow the predicted path to recovery is in a timely manner,” Logan said.
move sideways
Price increases in January and February were faster than expected, raising concerns among some officials that inflation is slowing. In economic forecasts released after last month's Fed meeting, the median of 19 policymakers still called for three rate cuts this year, while nine participants expected two or fewer rate cuts.
Atlanta Fed President Rafael Bostic on Wednesday predicted that interest rates would be cut only once in the fourth quarter this year, while Minneapolis Fed President Kashkari said he expected inflation to stop cooling and the economy to remain strong. He said there may not be a need to lower borrowing costs.
“If inflation continues to trend flat, it will raise the question of whether we need to cut rates at all,” Kashkari said Thursday.
Logan said that beyond the inflation statistics, he is concerned that monetary policy is not holding back the economy as much as most forecasts assume. That could mean higher so-called neutral interest rates, which neither slow nor stimulate the economy.
“Economic and financial evidence is accumulating that the long-term neutral interest rate is likely to have risen,” he said.
Logan, who previously managed asset portfolios at the New York Fed, reiterated that it may soon be appropriate for the central bank to start slowing down the pace at which it matures assets off its balance sheet. Policymakers discussed the possibility of an economic slowdown at their March meeting, and some Fed watchers expect that process to begin in the coming months.
– Catalina Saraiva, Bloomberg
