Dallas Fed President Sees Higher Interest Rates Needed to Tackle Inflation

Dallas Fed President Lorie Logan has made a bold forecast that the US Federal Reserve will need to raise short-term borrowing costs by at least half a percentage point to turn monetary policy 'modestly restrictive' and get inflation back on track. She estimates that the target range needs to rise an additional 50 basis points or more to balance the outlook and risks for the dual mandate goals.

Logan emphasized the importance of restoring price stability, saying 'We must restore price stability.' The economy is strengthening, and the labor market is well-balanced, but inflation remains a concern. Logan noted that inflation may not fall below 2.5 per cent without further rate hikes.

Her comments came on a day when the benchmark 10-year Treasury note yield reached a 24-year high, before falling back to around 5.24 per cent. Higher long-term bond yields indicate market participants expect strong economic growth and a higher Fed policy rate, although they may also reflect higher term premiums.

Logan acknowledged that the exact level of the policy rate needed to create some restriction is uncertain and can change over time depending on the broader financial environment.