Key facts
- Dallas Fed President Lorie Logan called for rate hikes of 50 basis points or more.
- Logan believes monetary policy needs to become "modestly restrictive" to reach the Fed's 2% inflation goal.
- The current Fed policy rate range is 3.75%-4.00%.
- Logan estimates the target range needs to rise an additional 50 basis points or more.
- Logan stated that inflation is falling but may not go much lower than 2.5% without further rate hikes.
- The benchmark 10-year Treasury note yield touched a 24-year high before falling to around 5.24%.
Dallas Fed President Lorie Logan stated on Thursday that the US central bank will need to raise interest rates by at least an additional half of a percentage point to achieve a "modestly restrictive" monetary policy and bring inflation down to the Fed's 2% target. Logan indicated that the current policy rate range of 3.75%-4.00%, established after last month's quarter-point increase, is an important first step in tightening policy.
"Still, I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals," Logan said in remarks prepared for Texas business executives. "We must restore price stability."
Logan noted that the economy is strengthening and the labor market is well-balanced. While inflation is falling as transitory factors fade, she believes it will not go much lower than 2.5% without further rate hikes. She added that a few additional increases would undo the FOMC's risk management cuts from last fall, when the committee reduced the policy rate by 75 basis points over the final three meetings of the year.
Logan's comments came on a day when the benchmark 10-year Treasury note yield touched a 24-year high before falling back to around 5.24%. She explained that higher long-term bond yields can reflect market expectations of strong economic growth and a higher Fed policy rate, but they may also indicate higher term premiums, which could slow the economy and reduce the need for further monetary tightening.
She acknowledged uncertainty regarding the exact level of the policy rate needed to create restriction, noting that it changes with the broader financial environment. Logan stated she will continue to monitor labor markets, prices, growth, consumption, and financial conditions to assess whether policy is becoming restrictive.