A top official at the US central bank has called on the Federal Reserve to immediately resume raising interest rates after forgoing an increase last month, citing scant evidence that inflationary pressures are easing as needed.
Lorie Logan, president of the Dallas Fed and a voting member this year on the Federal Open Market Committee, disclosed on Thursday that she was among the officials who thought a quarter-point interest rate rise at the June meeting was “entirely appropriate” in light of strong incoming data as she laid out the case for the central bank to further squeeze the US economy.
At the most recent meeting, officials unanimously supported a pause in the Fed’s historic monetary tightening campaign after 10 consecutive interest rate rises, but signalled that half a percentage point more worth of increases would be necessary in order to damp demand sufficiently.
In prepared remarks delivered at a Central Bank Research Association event, Logan said it was “important” for the Fed to “follow through” given her concerns about “whether inflation will return to target in a sustainable and timely way” amid what she described as “clearly pretty hot” data.
“If we lose ground in our effort to restore price stability, we will need to do more later to catch up,” she warned.
Logan expressed scepticism that the bulk of the impact of the Fed’s previous rate increases has yet to filter through the economy, instead arguing that “we have already had a fair amount of time to see the overall effects of monetary tightening”. The central bank has raised the federal funds rate more than 5 percentage points since early 2022.
One concern is that the housing market has “bottomed out”, Logan said, and if recent signs of improvement gather momentum, it could pose “upside risk to inflation down the road”.
Logan also pushed back on the idea that the banking stress that erupted earlier this year was having an outsized effect on credit availability across the economy.
Officials, including chair Jay Powell, have cited these factors as reasons why the Fed should move more gradually at this stage in terms of further interest rate increases, although he recently conceded that “consecutive” moves should not be ruled out.
Speaking on Wednesday, John Williams, president of the New York Fed and a close ally of Powell, said a June pause was the right decision but acknowledged that there was “more to do” with regard to interest rate rises.
Source: Economy - ft.com
