Fed’s Logan backs keeping interest rates steady for longer to cool inflation

Investing.com-- Dallas Federal Reserve President Lorie Logan said on Tuesday evening that the central bank will likely have to keep interest rates steady for longer to ensure inflation remains low, amid upside risks from President Donald Trump’s trade tariffs. 

But Logan said that there remained a possibility that “softer inflation and a weakening labor market” will make the case for interest rate cuts “fairly soon.” 

“My base case is that we’ll need to keep interest rates modestly restrictive for some time to complete the work of returning inflation sustainably to the 2 percent target,” Logan said at the World Affairs Council of San Antonio. 

Logan said that consumer price index inflation data released earlier on Tuesday pointed to a likely increase in personal consumption expenditures data for June. The latter is the Fed’s preferred gauge of inflation, and has remained consistently above the central bank’s 2% annual target. 

Logan noted that while Trump’s tariffs had only a “modest” effect on inflation so far, they were likely to create additional pressure in the coming months. She noted that shrinking inventories for U.S. businesses were likely to see Trump’s tariffs being baked into prices, and that some retailers were waiting to raise prices until they were clear on where tariffs were headed, all pointing to a coming uptick in inflation. 

Logan also noted that U.S. demand remained strong, while a strong labor market was likely to prop up household incomes. 

“All this adds up, for me, to a base case in which monetary policy needs to hold tight for a while longer to bring inflation sustainably back to target—and in this base case, we can sustain maximum employment even with modestly restrictive policy,” Logan said. 

The Dallas Fed president also flagged the need for central banks to remain independent from “short-term political considerations,” stating that the bank was likely to perform better on inflation if independent. 

Logan’s comments come amid repeated calls from Trump that the Fed cut interest rates. Trump has also taken to publicly attacking Fed Chair Jerome Powell, and is actively considering his replacement.

Powell, on the other hand, has also largely backed keeping interest rates unchanged until the inflationary effects of Trump’s tariffs become clear.