Dallas Fed President Stands Ready to Pour More Water on the Hot Coals of Inflation

The Federal Reserve is widely expected to skip another interest rate hike when it meets Sept. 19-20, but "skipping does not imply stopping" in the central bank's fight against inflation, Lorie Logan, president of the Federal Reserve Bank of Dallas, said Thursday evening.

"The traditional way to make sure a fire is cold out is to pour water on it — lots of water — until you have eliminated every last bit of heat," she said in prepared remarks for a presentation at the Dallas Business Club at Southern Methodist University.

"That is a good way to put out campfires, but I will argue today that it is not a good way to put out inflation," she said.

The Fed has raised interest rates 11 times since March 2022 to a 22-year high of 5.25% to 5.5%. Inflation has fallen to 3.2% in July from over 9% in June 2022, but that's still stubbornly high, Logan said.

Additionally, the labor market and the economy have remained far more resilient than expected, keeping inflation at elevated levels and pressuring the Fed to keep interest rates higher for longer.

Wall Street currently puts the odds at 95% of no rate hike at the Fed's meeting later this month, according to the CME FedWatch Tool, based on trading of Fed funds futures. The odds drop to about to about 55% for November and December.

Logan, however, said the Fed's fight against inflation isn't over. She reiterated the Fed's goal of holding inflation down to its target rate of 2% and noted that economic activity appears to be picking up. "If stronger economic activity continues, it could lead to a resurgence of inflation," she said.

Logan is a member of the central bank's Federal Open Market Committee, which decided on interest rates, though her views do not express the views of her colleagues on the committee or at the Fed.

"I believe we must proceed gradually, weighing the risk that inflation will be too high against the risk of dampening the economy too much," she said. "You might say we need to drizzle water on the firepit and watch closely for signs that the coals are heating up again.

"Skipping does not imply stopping," she said. "In coming months, further evaluation of the data and outlook could confirm that we need to do more to extinguish inflation."

Earlier in the day, Federal Reserve Bank of New York President John Williams offered similar sentiments.

“We’ve got policy in a good place, but we’re going to need to continue to be data-dependent,” he said during a moderated discussion with Bloomberg TV reporter Michael McKee at Bloomberg LP’s headquarters in New York. “We’ll have to keep watching the data carefully analyzing all of that and really asking ourselves the question: is this sufficiently restrictive."

Also on Thursday, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, appeared on the Marketplace radio program.

“We are very rapidly approaching the time when our argument is not going to be about how high should the rates go," he said. "It’s going to be an argument of how long do we need to keep the rates at this position before we’re sure that we’re on the path back to the target."