Dallas Fed president Lorie Logan reiterated Monday she sees lowering interest rates “gradually,” citing an increased risk that the job market could worsen and a danger that inflation could still heat up again.
“If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals,” Logan said in a speech at the Securities Industry and Financial Markets Association annual meeting in New York.
Logan said the economy is “strong and stable,” but that “meaningful uncertainties” remain in the outlook.
The downside risks to the job market have increased, she added, despite a stronger-than-expected jobs report for the month of September that caused traders to question whether the labor market was gaining more strength.
Inflation has come down after a Fed campaign to cool prices, Logan said, but there are still risks it could bubble up again.
Her comment comes after a warmer-than-expected inflation reading for the month of September as measured by the Consumer Price Index caused some to wonder if the Fed could slow or pause its new rate-cutting cycle.
The Fed last month lowered rates for the first tine in more than four years, by a half a percentage point, while estimating that rates would move even lower over the next 12 to 18 months. Fed officials penciled a median estimate of two more smaller rate cuts for the remainder of this year.
Fed officials will meet again November 6-7, and traders are currently betting on a 25 basis point rate cut.
San Francisco Federal Reserve president Mary Daly said last week that one or two more rate cuts this year would still be a “reasonable thing to do” if inflation and the job market cooperate.
But Fed governor Chris Waller said the Fed needs to proceed with “more caution” when cutting rates. Minneapolis Fed president Neel Kashkari said it’s “likely” the central bank will make “modest” interest rate reductions in the “coming quarters.”
Fed officials will get a fresh reading on inflation and the job market next week when their favored inflation gauge – the Personal Consumption Expenditures (PCE) index — is released along with the September jobs report from the Labor Department.
The jobs report may not offer officials a clear assessment because it could be buffeted by two major hurricanes that temporarily caused people in the regions affected by the natural disasters to be out of work.
Logan noted that any number of shocks to the economy could influence how quickly or slowly the Fed’s rate-setting committee lowers rates and where rates should eventually settle.
“The FOMC will need to remain nimble and willing to adjust if appropriate,” she said.
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