Dallas Fed’s Logan: Fed Needs at Least Two More 25-Basis-Point Rate Hikes

Dallas Fed President Lorie Logan said Oct. 31 that the Fed will need at least two more 25-basis-point rate increases, lifting the policy rate by a cumulative 50 basis points, then pause to assess economic and financial conditions before deciding next steps. Logan backed holding the federal funds target range at 3.75%–4.00% in this week’s 10–2 Fed vote. She said inflation remains too high and the policy rate must rise by at least another 50 basis points to sufficiently restrain the economy and return inflation to the 2% target. Logan said tech investment prospects and geopolitical tensions are feeding market volatility. In that environment, a gradual approach to policy adjustments helps households, businesses and market participants adapt to higher rates and reduces the risk of an unnecessary sharp decline in activity. She also stressed that the Fed should clearly communicate its policy objectives, a stance that differs from Chair Jerome Powell’s view that such guidance should be reserved for crises. Logan argued that current financial conditions continue to support growth and that higher long-term borrowing costs mainly reflect investors’ expectations of stronger growth and higher rates, rather than an independent drag on the economy. Even if the Fed skips a meeting and leaves rates unchanged, that would not change the ultimate policy goal; as long as markets understand the Fed’s plan, the exact timing of hikes has limited effect on the long-term rates borrowers face.