Dallas Fed president cautious about further US rate cuts

There may be little room to cut rates further in the US, the president of the Federal Reserve Bank of Dallas has said.

In a speech at the bank on September 30, Lorie Logan argued that policy was likely to be only modestly restrictive at the moment.

She said the US was at a key moment for monetary policy and noted that members of the Federal Open Market Committee were beginning to diverge in their economic projections.

“Even setting aside temporary effects of this year’s increases in tariff rates, inflation is not convincingly on track to return all the way to 2%,” Logan said. She added that a survey by the Dallas Fed found that businesses had not yet passed on tariff-induced price rises to consumers, though they planned to do so.

Logan said all three components of inflation – goods, housing services and non-housing services – were running above the Fed’s target. Non-housing services inflation, which had been running at around 3.4% over the past year, was the most worrying component over the medium term.

“My staff estimates that the current rate of inflation in this category is high enough to keep overall inflation above 2% by 30–40 basis points,” she said.

Logan also pointed to resilient aggregate demand. Although the labour market had undeniably slowed, “with meaningful costs to workers, not all of the weakness represents economic slack that less-restrictive monetary policy can ameliorate”.

She pointed to supply factors as something the Fed could do little about. She also warned that stimulating demand when it was already in balance with supply would only increase price pressures.

“The current low hiring rate makes the economy more vulnerable than usual to any increase in layoffs or weakening in demand,” Logan warned.