Logan says Fed needs to hold rates longer to cool inflation

Dallas Fed President Lorie Logan.

Federal Reserve Bank of Dallas President Lorie Logan said that while policymakers will likely need to hold interest rates steady for a bit longer to fully cool inflation, it’s also possible they may need to pivot to cutting if inflation and labor markets soften.

“All this adds up, for me, to a base case in which monetary policy needs to hold tight for a while longer to bring inflation sustainably back to target — and in this base case, we can sustain maximum employment even with modestly restrictive policy,” Logan said Tuesday.

But Logan, who has been cautious about inflation during her three-year tenure as Dallas Fed chief, also opened the door to a scenario in which the central bank might have to cut rates earlier.

“It’s also possible that some combination of softer inflation and a weakening labor market will call for lower rates fairly soon,” Logan said in prepared remarks for an event in San Antonio.

Fed officials have left rates unchanged this year, adopting a “wait and see” approach to assess how tariffs impact prices. But policymakers are split on how to proceed the rest of the year.

In June the median estimate of the 19 officials called for two interest-rate cuts this year, while nine forecast just one cut or none. Minutes of that meeting showed the split was driven largely by differing expectations for how tariffs might affect inflation.

Consumer price data released earlier Tuesday showed a smaller-than-expected advance in underlying prices in June — the fifth straight month of such a surprise. But they also included signs that businesses are increasingly passing some tariff-related costs to consumers.

Still, the soft data this year has encouraged Fed officials and economists who were predicting more dire outcomes.

Logan said Tuesday’s data suggest the Fed’s preferred price gauge will probably accelerate in June, and she sounded a note of caution about putting too much faith in short streaks of good inflation news.

That has “raised hopes before, only to disappoint people when inflation rebounded,” Logan warned. “So I’d like to see low inflation continue longer to be convinced.”

Logan also spoke about the Fed’s independence, something other officials have emphasized in recent months amid the near-daily criticism and calls for lower interest rates from President Donald Trump.

“In the short run, a central bank could always temporarily boost employment by cutting interest rates. But over time, excessive rate cuts would trigger a spiral of inflation, wiping out the benefits of a hot labor market,” Logan said. “So to have a sustainably strong economy, a central bank has to make decisions for the long run.”