Federal Reserve Bank of Dallas President Lorie Logan said the central bank may need to raise interest rates higher than officials previously envisioned to ensure that inflation keeps declining.
(Bloomberg) — Federal Reserve Bank of Dallas President Lorie Logan said the central bank may need to raise interest rates higher than officials previously envisioned to ensure that inflation keeps declining.
“We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions,” Logan, who votes on monetary policy this year, said Tuesday in prepared remarks for an event at Prairie View A&M University in Texas.
Logan, whose comments came hours after a report showed consumer prices rose at a brisk pace in January, pointed to the persistence of price pressures and the tight labor market as factors driving the need for policymakers to remain flexible in their actions. She didn’t explicitly mention Tuesday’s data in her speech text.
Earlier on Tuesday, Richmond Fed President Thomas Barkin said on Bloomberg TV that the central bank may need to raise interest rates to a higher level than previously anticipated should inflation keep running too fast for comfort.
Officials in December penciled in a peak interest rate of about 5.1%, based on the median forecast. At the start of February, they raised interest rates by a quarter of a percentage point to a range of 4.5% to 4.75%.
Logan said she sees two risks to monetary policy right now: doing too little and causing an inflation comeback and doing too much and creating excess pain in the labor market. The “most important” risk is doing too little, she said.
“Given the risks, we shouldn’t lock in on a peak interest rate or a precise path of rates,” Logan said. “I anticipate we will need to continue gradually raising the fed funds rate until we see convincing evidence that inflation is on track to return to our 2% target in a sustainable and timely way.”
Fed officials have been raising rates aggressively to try to cool inflation that hit a 40-year high last year.
Slower Pace
The most recent hike followed a half percentage-point increase at their December meeting, which came after four consecutive jumbo-sized 75-basis-point hikes.
Policymakers have said they want to raise rates until they see inflation meaningfully slow down, and then pause and hold them there until price growth eases to their 2% target. The slower pace will allow them to more carefully assess the impact of their policy on the economy.
Consumer prices rose 0.5% in January, the most in three months, according to a Labor Department report published Tuesday. The measure was up 6.4% from a year earlier.
A report earlier this month showed employers added 517,000 jobs in January, nearly 200,000 more than the highest forecast in a Bloomberg survey, and the unemployment rate fell to 3.4%, the lowest in 53 years.
Policymakers may need to stay flexible even after they stop raising rates, as they may need to return to increases after pausing, Logan said.
“Even after we have enough evidence that we don’t need to raise rates at some future meeting, we’ll need to remain flexible and tighten further if changes in the economic outlook or financial conditions call for it,” Logan said.
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