The president of the Federal Reserve Bank of Dallas, Lorie Logan, said Saturday that further interest-rate hikes remain possible if inflation begins to heat up again.
Investors are generally expecting rates to drop in 2024. However, Logan says that cuts aren’t a given.
Logan spoke during a panel discussion at the annual meetings of the American Economic Association and the International Banking, Economics, and Finance Association.
“If we don’t maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we’ve made,” Logan said, according to a transcript of her delivered remarks. “In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.”
The federal-funds rate, set by the Federal Open Market Committee, is currently 5.25% to 5.5%. The committee maintained that rate at its mid-December meeting, and observers generally expect those rates to drop gradually through 2024.
Logan, however, said that rate cuts weren’t guaranteed.
“Inflation today is in a much better place than last January,” she said. “But the job of restoring price stability is not yet complete. Our challenge now is to finish the work of bringing inflation sustainably back to the 2% target.”
The consumer price index in November was up 3.1% over the past 12 months, according to a December release from the U.S. Bureau of Labor Statistics. New data is expected on Jan. 11.
Logan said that growth is “settling down” and that the labor market “continues to rebalance.” She said that risks to a return to 2% inflation include geopolitical threats to supply chains and “financial fragilities” in commercial real estate and other sectors.
“Restrictive financial conditions have played an important role in bringing demand into line with supply and keeping inflation expectations well-anchored,” Logan said. “We can’t count on sustaining price stability if we don’t maintain sufficiently restrictive financial conditions.”
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