Dallas Federal Reserve Update

(Rueters) – On Thursday, Dallas Federal Reserve Bank President Lorie Logan expressed her readiness to maintain interest rates for “quite some time,” even if inflation approaches the Fed’s 2% target, provided the labor market remains strong.

She emphasized that a combination of slowing inflation and a robust labor market suggests that monetary policy is not overly restrictive. During her remarks prepared for a Bank for International Settlements conference in Mexico City, she stated, “it wouldn’t necessarily allow the Fed to cut rates soon.”

Instead, she indicated that this scenario “would strongly suggest that we’re already pretty close to the neutral rate, without much near-term room for further cuts.”

However, if there is further cooling in the labor market or demand, that might signal it could be time to ease rates.

Last week, due to slower-than-expected progress in reducing inflation, the Fed maintained its short-term policy rate between 4.25% and 4.50%. Fed Chair Jerome Powell also mentioned that there is no urgency in cutting rates and that more softness in inflation or job market conditions would be needed to prompt any policy changes.

U.S. inflation, measured by the Fed’s preferred personal consumption expenditures price index, increased to 2.6% in December. Logan’s cautious stance on cutting rates based solely on improving inflation puts a spotlight on the labor market, which has remained resilient, with an unemployment rate of 4.1% last month.

The Labor Department is set to release employment data for February on Friday, with economists predicting job growth will moderate but not drastically decline.

Logan acknowledged various uncertainties that could influence the Fed’s decisions, including trade policies under the Trump administration and fluctuating financial conditions. She stated, “The monetary policy implications of these uncertainties generally center on whether sustainably restoring price stability requires keeping rates at least at the current level or reducing them.”