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Dallas Federal Reserve President Lorie Logan said Thursday that U.S. interest rates may need to rise by at least another 50 basis points as inflation remains above the Federal Reserve’s 2% target, although surging Treasury yields could reduce the need for additional monetary tightening.
“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 prepared remarks for an event at the Dallas Fed.
Logan said U.S. inflation has been easing but remains too high, reinforcing the Fed’s focus on restoring price stability. August PCE price index data released earlier this week showed that core inflation moderated slightly but continued to run above the central bank’s annual target.
At the same time, Logan pointed to a resilient U.S. economy and labor market, alongside a significant increase in Treasury yields. She said higher term premiums could restrain economic activity and potentially lessen the amount of additional tightening required from the Fed.
Treasury yields have climbed sharply amid concerns about energy-price risks stemming from the U.S.-Iran conflict and heavy government and corporate borrowing. The benchmark 10-year Treasury yield surged above 5% this week, reaching its highest level since 2002.
Logan said strong economic growth and consumer spending suggest current monetary policy is not yet sufficiently restrictive to bring inflation sustainably back to 2%. However, she acknowledged uncertainty over exactly how high interest rates must rise to meaningfully constrain demand.
At a minimum, Logan said several additional rate increases could offset the Fed’s “risk management” rate cuts implemented last fall.
The Federal Reserve raised its benchmark interest rate by 25 basis points to 4.0% earlier this month. Fed Chair Kevin Warsh has reiterated the central bank’s commitment to returning inflation to its 2% target.
Investors are now awaiting Friday’s U.S. nonfarm payrolls report, which could provide fresh signals about the labor market and the outlook for future Federal Reserve interest-rate decisions.
