Dallas Federal Reserve bank president Lorie Logan on Thursday said she’s concerned that “much too high” inflation is not cooling fast enough yet to allow the Fed to pause its interest-rate hike campaign in June.
“The data in coming weeks could yet show that it is appropriate to skip a meeting,” Ms. Logan said in remarks prepared for delivery to the Texas Bankers Association in San Antonio, referring to the Fed’s twice-quarterly policy-setting meetings, the next of which takes place June 13-14. “As of today, though, we aren’t there yet.”
Investors have been betting heavily that the Fed’s quarter-point interest-rate hike in early May that brought the policy rate to a 5.00-per-cent to 5.25-per-cent range will be its last.
Fed chair Jerome Powell after that meeting signalled that policy makers could be ready to take a break to assess the impact of recent bank sector stress on credit conditions and weigh the impact of the Fed’s interest-rate hikes – a full five percentage points over the last 14 months – so far.
Ms. Logan’s hawkish remarks creates fresh questions over whether that stance holds. Bank sector stress so far equates to about a quarter or a half-point of policy tightening, she said on Thursday, but other aspects of financial conditions have eased since March.
Inflation is down from last year’s peaks, the labour market is cooling, and the economy overall is less out of balance than it had been, she said – all signs that the Fed’s rate hikes are beginning to bite.
But 3.4 per cent unemployment, the lowest rate since 1969, appears she said to be contributing to high inflation, which by the Dallas Fed’s trimmed mean measure has levelled off at above 4.5 per cent.
“We haven’t yet made the progress we need to make,” Ms. Logan said. “And it’s a long way from here to 2 per cent inflation.”
She said she understands the risks that raising rates too fast or too much could cost more jobs than necessary, and is attentive also to the potential for financial conditions to deteriorate suddenly. Still, she said, bringing inflation down is a “critical priority,” and not doing so fast enough would ultimately force even strong policy tightening and worse outcomes for workers and businesses.
“Even as we consider how best to manage the risks, they must not stop us from doing what’s necessary to achieve 2 per cent inflation,” Ms. Logan said.
Ms. Logan separately said she believes all banks in the U.S. should establish access to the Fed’s emergency lending facilities and regularly test them as backstops against the kinds of deposit runs and other liquidity challenges that led to the string of regional bank failures that started in March.