Federal Reserve Bank of Dallas President Lorie Logan asserted on Friday that it would be premature to consider reducing interest rates, pointing to potential upward pressures on inflation. In a series of remarks, Logan underscored several key points:
Emphasized the necessity of resolving uncertainties surrounding the prevailing economic trajectory.
Expressing growing apprehension regarding the potential for inflation to exceed expectations.
Advocated for the Federal Open Market Committee (FOMC) to remain vigilant and ready to adjust policy if inflationary pressures persist.
Acknowledged challenges in predicting the timing of when overnight reverse repo balances might be depleted.
Suggested that it would soon be prudent for the FOMC to deliberate on slowing the reduction, rather than halting, of asset holdings, with a view to providing a more gradual adjustment period for market participants.
Argued that a slower, yet still substantial, pace of asset runoff would afford both banks and money market entities additional time to manage liquidity, while allowing the Fed to gauge liquidity conditions effectively.
Posited that tapering asset holdings would mitigate the risk of overstepping in policy measures and minimize potential disruptions in broader financial conditions.
Clarified that the decision to taper is independent of deliberations regarding the appropriate level of policy restraint.
Maintained reservations about incorporating higher trend productivity into the baseline economic outlook.
Market response to Logan’s comments was reflected in the US Dollar Index, which held onto modest gains near 104.40.
