By Michael S. Derby
NEW YORK (Reuters) -Dallas Federal Reserve President Lorie Logan said on Friday that an inflation landscape increasingly beset by upside risks argues against any imminent push toward easier monetary policy by the U.S. central bank.
"I believe it's much too soon to think about cutting interest rates," Logan said in remarks prepared for a speech at Duke University.
Before lowering rates, "I will need to see more of the uncertainty resolved about which economic path we're on. And, as always the (Federal Open Market Committee) should remain prepared to respond appropriately if inflation stops falling," she said.
Logan said she continues to be concerned about inflation, which had been falling back toward the Fed's 2% target last year but has made less progress in the first months of 2024.
"I'm increasingly concerned about upside risk to the inflation outlook," Logan said. "The key risk is not that inflation might rise - though monetary policymakers must always remain on guard against that outcome - but rather that inflation will stall out and fail to follow the forecast path all the way back to 2% in a timely way," she said. The Fed must act to ensure it gets inflation back to 2%, she said.
Logan spoke in the wake of the release on Friday of much stronger-than-expected hiring data for March, which showed a robust gain of 303,000 jobs in March and a decline in the jobless rate to 3.8% from 3.9% in February. The report helped bolster the case that the Fed faces no urgency to cut rates, which is the message central bank policymakers have been sending to markets in comments this week.
The Fed last month kept its policy rate in the 5.25%-5.50% range, where it has been since last July, and policymakers continued to pencil in three rate cuts for this year, albeit with less conviction. Financial markets have been dialing back expectations of rate cuts amid strong economic data and a lack of progress in the inflation data for January and February.
Logan said in her remarks that the Fed has made "substantial progress" toward getting inflation back to the 2% target, while adding "in the first two months of 2024, however, inflation data surprised to the upside."
Logan, who is not currently a voting member of the rate-setting FOMC, also said that she favors slowing the drawdown of the Fed's balance sheet before halting it altogether.
"It will soon be appropriate for the FOMC to decide when to slow - not stop - the runoff of our asset holdings," Logan said, adding that "a slower but still meaningful pace will provide more time for banks and money market participants to redistribute liquidity and for the FOMC to assess liquidity conditions."
She also that "it's remarkable how resilient the economy has been to the increases in interest rates over the past two years," and noted that her business contacts have consistently told her that when it comes to the economic outlook, "they see a 'soft landing' as the most likely scenario."
Logan also said it's possible the economy may be shifting toward a higher state of productivity that could allow for higher levels of activity that don't generate increased price pressures. She also said the level of interest that's neutral in its influence on the economy may have also risen.