Fed’s Logan urges caution on rate cuts as inflation trends higher

Investing.com -- Federal Reserve Bank of Dallas President Lorie Logan said Thursday that the U.S. central bank should be "very cautious" about further interest rate cuts, noting that inflation is running above target and trending higher.

Speaking to economics students at the University of Texas at Austin’s graduate school of business, Logan described last month’s rate cut as "insurance against more rapid, non-linear decline in the labor market" but emphasized the risks of easing monetary policy too quickly.

"We need to be very cautious about rate cuts from here and make sure that we appropriately calibrate policy so that you don’t ease conditions too much and only to have to reverse course, which would be very painful in terms of restoring price stability," Logan said.

Logan pointed out that while payroll gains have "declined markedly," the labor market remains "fairly balanced" and is "only gradually slowing." She added that the economy is "very close to maximum employment" and that it would be "appropriate to see a little more cooling in the labor market."

On inflation, Logan noted that tariffs have contributed to higher inflation recently through goods prices, though their overall effects have been "more moderate than had anticipated." She warned about potential risks to inflation expectations if tariff uncertainty continues.

"Even if tariffs have one-time effect, the longer it takes and uncertainty continues, the higher the risk to inflation expectations," Logan said. "We need to guard against the risk that inflation expectations could rise."

Logan described current monetary policy as "not more than modestly restrictive," which she considers appropriate given economic conditions. Her personal forecast includes "a bit slower normalization of the policy path" and expects unemployment to "rise a little bit, but not too far."

She also highlighted counterbalancing forces in the economy, noting a drop in labor market demand alongside significant investment in AI data centers that is "counterbalancing reduction in demand in other parts of economy."

Logan emphasized the importance of the Fed’s independence and data-driven approach, stating that an "independent central bank is critically important for price stability" and that the Fed remains focused on "data and facts" to "help ensure stable conditions over time."