Fed’s Logan says more rate hikes needed to curb sticky inflation

Dallas Federal Reserve President Lorie Logan stated on Thursday that U.S. inflation remains higher than the central bank's 2% annual target, necessitating further interest rate hikes. While surging yields could assist in stabilizing inflation, diminishing the need for monetary policy tightening, Logan emphasized that inflation still far exceeds the Fed's objective.

She estimated the target range should increase by an additional 50 basis points or more to effectively balance the outlook and risks of the dual mandate goals. Logan pointed out that although core prices saw a slight decrease in August's PCE price index, they still remained well above the 2% target. The economy and labor market remain robust, and Treasury yields have surged significantly in recent weeks due to concerns over energy price risks from the U.S.-Iran conflict and heightened government and corporate borrowing.

Higher term premiums and elevated risk-free rates may also contribute to slowing the economy, reducing the need for further rate hikes. Despite strong growth and consumer spending indicating that monetary policy is not overly restrictive, Logan noted that it remains uncertain what interest rate level would achieve the desired level of restriction.

At a minimum, several additional rate increases are required to compensate for the Fed's "risk management" rate cuts from last fall. The Federal Reserve recently raised interest rates by 25 basis points to 4.0%, with Chair Kevin Warsh reiterating the bank's commitment to reaching its 2% inflation target. Logan's remarks precede nonfarm payrolls data expected on Friday, which is anticipated to provide further insights on interest rate decisions.