Dallas Fed president says rates may have to go higher

Lorie Logan says there may be a skip this month but more hikes may be needed.

Federal Reserve Bank of Dallas President Lorie Logan said that skipping an interest-rate hike at the US central bank’s upcoming policy meeting may be appropriate, while also signaling rates may have to rise further to get inflation back to 2%.

The Federal Open Market Committee, the group of Fed policymakers that sets rates, will gather on Sept. 19-20 and debate whether the current level of its benchmark lending rate is high enough to cool demand and price increases.

“Another skip could be appropriate when we meet later this month,” Logan said Thursday in remarks prepared for delivery at the Dallas Business Club. “But skipping does not imply stopping. In coming months, further evaluation of the data and outlook could confirm that we need to do more to extinguish inflation.”

Logan added that officials will have to gauge whether monetary policy is now sufficiently restrictive to return inflation all the way to their 2% goal in a sustainable and timely way, or whether the FOMC still needs to do more.

“My base case, though, is that there is work left to do,” she said.

Excluding food and energy, prices rose 4.2% in the year through July. The labor market is cooling, but overall demand has been strong in the third quarter.

“Economic activity is picking up — contrary to expectations all year that the economy would slow down,” Logan said. “To sustain low inflation, supply and demand need to be in balance. Last year, labor demand greatly outpaced supply.”

Several Fed officials have said they can be patient now and allow the data to make the case about whether they need to hike further or not.

“I believe we must proceed gradually, weighing the risk that inflation will be too high against the risk of dampening the economy too much,” Logan said.