Dallas Fed President Lorie Logan became the clearest advocate yet for renewed monetary tightening, becoming the first Fed official to publicly support another interest rate increase since Kevin Warsh became chair. In prepared remarks delivered in Houston on Thursday, Logan argued that “modestly higher interest rates would better balance the outlook and risks” because inflation remains well above target despite June’s softer CPI report. She said inflation “has been too high, for too long,” and “does not appear to be on track all the way back to 2%.”
Making the case for pre-emptive action, Logan argued that policy is not sufficiently restrictive to ensure inflation returns sustainably to target. “The labor, consumption and financial data indicate that monetary policy is not restraining the economy,” she said. Logan warned that waiting too long would increase the eventual economic cost of restoring price stability, saying, “Better modest restriction now than severe restriction later.” She also downplayed the significance of the latest inflation report, describing a return to 2% under current conditions as “more a hope than a likelihood.”
Logan identified both geopolitical and structural factors that could keep inflation elevated. She warned that renewed fighting in the Middle East threatens to push energy prices higher again, while the boom in AI investment is already lifting demand across the economy. Although AI could eventually improve productivity, she said “the potential size and timing of those gains are uncertain,” whereas “the demand effects are here already.” Logan’s comments underscore growing differences within the FOMC ahead of the July 28-29 meeting and increase the likelihood of a more contentious policy debate even if the committee ultimately leaves rates unchanged.
