Fed’s Logan signals faster winter tightening and expects two further hikes

At least two further 25-basis-point interest rate increases will be required, Dallas Federal Reserve (Fed) President Lorie Logan said on Tuesday, placing the Fed 50 basis points below a “modestly restrictive level.”

Speaking at the 11th joint energy conference organised by the Federal Reserve banks of Dallas and Kansas City, Logan suggested that “more rapid rate hikes possibly needed this winter,” while arguing that a gradual approach to policy adjustments can limit the risks of a sharp deterioration in economic activity. Once two rate increases have been delivered, she said, “it would make sense to pause” and consider what additional measures might be required.

Logan sets out the case for further tightening:

At least two further quarter-percentage-point rate rises are clearly needed from the Fed

This winter may require a faster pace of rate increases

The US central bank may be able to increase interest rates this winter at a faster pace than it has so far

A gradual adjustment of policy can limit the risk of an unnecessarily sharp deterioration in economic activity

A prompt balancing of the outlook and risks for inflation and employment is important

Rather than providing an independent boost to activity, higher bond-market rates indicate that monetary policy still has work to do

Following two further rate increases, a pause to judge what additional action may be appropriate would make sense

A modestly restrictive level remains at least 50 basis points above the Fed’s policy rate

Price pressures have sources beyond wartime disruptions to energy supplies

Inflationary pressures are being reinforced by accommodative policy; data suggest the real Fed funds rate stands at 78 basis points

The stronger-than-expected consumer price index raises concerns that personal consumption expenditures inflation could increase

The labour market is in balance and is even tightening slightly

The inflation trend is running considerably above the 2% goal

Strong economic growth is accompanied by solid consumer spending and robust business expenditure

Tariffs do not account for all price pressures, and the broader trend is likely to continue