Dallas Fed’s Logan: two more rate hikes still needed
Dallas Federal Reserve President Lorie Logan said the Fed needs at least two more quarter-point rate hikes, arguing a pause in the hiking cycle would not change the ultimate direction of policy.
Logan said that skipping a rate decision at an upcoming meeting would not alter where policy is headed, and that moving rates up gradually lowers the risk of a sharp downturn in the economy. She said gradual adjustments give households, businesses and investors time to adapt to higher borrowing costs, and that making the eventual rate destination clear helps the economy absorb the benefits of any pause.
She called it “unacceptable” that inflation is not moving back toward the Fed’s 2% target. After the Fed’s most recent 50 basis points of tightening, Logan said a pause would make sense so policymakers can assess what further action is warranted.
On financial conditions, Logan said they are currently providing a tailwind to the economy rather than a drag. She noted that higher market interest rates signal investors believe the Fed still has more work to do, and that rising long-term yields have not weighed on growth as much as might be expected. She described economic growth as strong, consumer spending as solid, and the labor market as balanced, with some signs of tightening.
This matters for markets because signals of further Fed tightening tend to support US Treasury yields and the US dollar, while weighing on risk assets such as the S&P 500 and gold (XAU/USD), which typically benefit when rate expectations fall.
Source: FXStreet