By Michael S. Derby
NEW YORK, Feb 20 (Reuters) – Dallas Federal Reserve President Lorie Logan said on Friday that while she expects inflation pressures to ebb as tariff impacts on the economy wane, she’s not yet prepared to say what the next move for monetary policy should be.
Logan, speaking at an event at Columbia University in New York City, said she was “cautiously optimistic” that the current monetary policy stance means “we’re on a path for inflation to come back down toward our target.”
But she added “I’m not fully convinced that we’re on a pathway to our 2% target” amid significant uncertainty about how the current tariffs have impacted the economy, and uncertainty about what will happen after the Supreme Court invalidated many of President Donald Trump’s import taxes.
“There are a lot of tailwinds with fiscal policy here being supportive, financial conditions also being supportive, and we continue to see pretty strong business investment from AI (artificial intelligence) and consumer spending,” Logan said. “There is the potential for demand to outstrip supply and keep inflation from falling” back to where it should be.
“I do think that policy is well positioned,” and “I see risks on both sides of our mandate that we need to be attentive to, but I wouldn’t want to speculate about different scenarios that may play out going forward.”
The Fed lowered its benchmark interest rate last year by three quarters of a percentage point to the current 3.50%-3.75% range, as it sought to offer a lifeline to a softening job market while at the same time keeping enough restraint in place to get inflation back to its target.
Many U.S. central bank officials were uncomfortable with the rate cuts, given that inflation remains well above the target and actually worsened last year as Trump’s tariff increases hit the economy. Markets are anticipating more Fed rate cuts this year, but policymakers have offered little guidance.
Logan, who holds a vote on the rate-setting Federal Open Market Committee this year, said she supported the central bank’s decision to hold rates steady at the end of its January 27-28 meeting.
Logan said there’s uncertainty about how the tariff system will function now that the Supreme Court has ruled, amid a lack of clarity as to how any potential rebate of the invalid taxes may drive up price pressures. “It’s something we’ll be paying attention to, but I don’t have any specific perspective” on what is going to happen.
MONEY MARKET LIQUIDITY
She also addressed technical considerations around the Fed’s management of money market liquidity, which has driven it to keep in place a still very large central bank balance sheet. Logan said it’s possible technological innovation in payment systems and regulation changes could lower the need to hold high levels of reserves by financial institutions.
“I don’t have strong views about the direction of liquidity regulations at the moment,” Logan said. “I’ve worried over time that we’ve trapped a lot of highly liquid assets” under a lot of rules and “I do think we need to be looking” at these rules “thoroughly.”
Logan also repeated her view that the Fed should move from the current targeting of the federal funds rate for monetary policy to a repo market rate, given that the latter sends much clearer signals about the tightness of money markets.
(Reporting by Michael S. Derby; Editing by Paul Simao)
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