DALLAS: Federal Reserve (Fed) Bank of Dallas president Lorie Logan said officials may need to raise interest rates later this year to bring inflation back to the US central bank’s 2% target.
Logan said the US labour market is “broadly balanced”, investment in artificial intelligence is booming and financial conditions are “accommodative”.
But, she added, inflation doesn’t appear headed back to the Fed’s 2% goal.
“These conditions indicate that monetary policy is not restraining the economy,” Logan said at an event in El Paso, Texas.
“I am increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability and appropriately balance both sides of the Fed’s dual mandate.”
Policymakers have recently expressed more concern that inflation, which has been above target for more than five years, is accelerating again.
“Above-target inflation can become entrenched if it persists too long,” she said.
Logan, who votes this year on the rate-setting Federal Open Market Committee, dissented at the April meeting over language in the post-meeting statement that indicated the Fed’s next move was more likely to be a cut than a hike.
In a question-and-answer session following the remarks, Logan believes interest rates are either neutral right now – not weighing on demand – or even loose and actually stimulating the economy.
“We need at least mildly restrictive policy to finish the job,” she said.
Logan said in her remarks that she’s looking at a variety of metrics that strip out volatile price categories as she assesses inflation. She warned, however, the Dallas Fed’s so-called trimmed mean inflation measure – which new Fed chairman Kevin Warsh has praised – is likely showing too low a reading due to a technical factor.
“Putting together all these different analyses and ways of looking at the data, inflation appears to be trending toward the mid 2s – not all the way back to 2%,” said Logan. — Bloomberg
