Federal Reserve signals need for at least two more rate hikes, Logan says

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Federal Reserve's Logan signals at least two more 25-basis-point rate hikes under the current outlook, aiming for a 0.5-point increase above current policy.
FOMC voted 10-2 this week to keep short-term U.S. rates at 3.75% to 4.00%, while Logan emphasizes further tightening is needed to curb inflation toward the 2% target.
Logan asserts higher longer-term borrowing costs reflect investor expectations for more rate hikes, not a direct drag on activity, and that market volatility shapes the pace, not the policy destination.

Policy path points to further tightening

As reported by Reuters, Logan says in prepared remarks for students at Davidson College that the Federal Open Market Committee needs at least two more 25-basis-point rate increases under the current outlook. She says a pause would make sense only after those moves, to evaluate incoming economic and financial developments and decide whether further action is needed.

Logan joins the majority of the FOMC in a 10-2 vote this week to keep short-term U.S. interest rates in the 3.75% to 4.00% range, even as the central bank says the economy remains strong and inflation is too high. For Logan, who is among the more hawkish Fed policymakers, that decision is still consistent with her view that rates need to be at least half a percentage point higher to restrain the economy enough to return inflation to the Fed's 2% goal.

Her comments amount to some of the clearest rate guidance from a U.S. central banker since Fed Chair Kevin Warsh took office in May. Logan also says it is important for the Fed to make its policy destination clear, a position that contrasts with Warsh's view that such guidance should be reserved for crisis periods.

Market volatility shapes pace, not destination

Logan says financial markets have been volatile in response to changes in the technology investment outlook and geopolitical developments. In that environment, she says, moving policy more gradually can help households, businesses and market participants adjust to higher borrowing costs and reduce the risk of a sharper-than-necessary deterioration in economic activity.

At the same time, Logan argues that broader financial conditions are still supporting growth. She attributes the recent increase in longer-term borrowing costs to expectations of stronger growth and higher interest rates, rather than to an independent drag on activity.

In her view, higher market rates signal that investors believe monetary policy still has more work to do. She adds that skipping a meeting does not alter the Fed's destination, because if markets understand the FOMC's plans, the exact timing of each increase has limited effect on the longer-term rates most borrowers pay.

Our earlier article examined the intensifying debate inside the Fed over how much officials should communicate about the rate path ahead of the next policy decision. It noted that Chair Kevin Warsh’s push for less forward guidance has faced internal pushback, with other policymakers’ public remarks repeatedly shifting market expectations about whether additional tightening is coming.

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