Dallas Fed's Lorie Logan calls for higher interest rates

Dallas Federal Reserve President Lorie Logan called Thursday for modestly higher interest rates, arguing that inflation remains too far above the Fed’s 2% target and that current policy is not doing enough to bring it back down.

“I currently believe modestly higher interest rates would better balance the outlook and risks for the FOMC’s dual mandate goals,” Logan said in prepared remarks for a Houston speech. “Every month of above-target inflation has compounded the strain on Americans’ budgets.”

Logan, a voting member of the Federal Open Market Committee this year, said her best judgment is that inflation is heading toward the “mid 2’s” — not all the way back to 2%. She pointed to several measures to support that view: core PCE inflation stands at 3.4% and has risen since December, the New York Fed’s multivariate core trend model also puts the persistent component of inflation at 3.4%, and market-based non-housing core services inflation has made no progress on a 12-month basis since mid-2024.

Logan acknowledged that June’s Consumer Price Index data showed a monthly decline, driven in part by falling energy prices and softening housing costs. But she said one positive month was not sufficient. “One month of relief is not enough. It is time to finish the job of restoring price stability,” she said.

She described the labor market as solid, with the unemployment rate averaging 4.3% in the first half of the year and employers adding an average of 92,000 jobs per month. That stability, she argued, removes a key obstacle to tightening policy. “If inflation is not heading all the way to 2 percent on its own, then at least some policy restriction is needed to help get it there,” Logan said. “Better modest restriction now than severe restriction later.”

Logan also cited upside risks to inflation, including renewed conflict in the Middle East and the potential for AI investment demand to broaden price pressures beyond narrow categories like computer chips.

Logan stopped short of committing to a hike at the FOMC’s next meeting, set for July 28-29, and gave no indication of a preferred magnitude for any increase. Markets are currently assigning just a 12.3% probability to a rate increase at that gathering, with September or October seen as the more likely window, according to CNBC.

Logan’s remarks put her at odds with New York Federal Reserve President John Williams, who said Wednesday that inflation has peaked and backs holding rates steady. Cleveland Federal Reserve President Beth Hammack and Minneapolis Federal Reserve President Neel Kashkari have both shifted toward expecting a rate hike by year-end, with Hammack pointing to AI infrastructure demand as a driver of persistent price pressure.