Dallas Federal Reserve President Lorie Logan joined the chorus of policymakers attempting to quell the market’s dovish interpretation of the central bank’s current policy stance. Logan expressed concern about the decline in long-term interest rates that began in November, which led to lower Treasury yields as markets sensed a halt in rate hikes.
Following the Fed’s December policy meeting, financial conditions further eased, prompting markets to price in six rate cuts starting in March. However, market expectations were tempered after strong December jobs data, causing the yield on the 10-year Treasury note to rise to its highest level since December.
Speaking at the American Economics Association conference in San Antonio, Logan warned that easier financial conditions might fuel inflation and undermine the progress the Fed has made in curbing price rises since the summer. She emphasized that another rate increase should not be ruled out entirely.
“We can’t rely on maintaining price stability without maintaining sufficiently restrictive financial conditions,” Logan stated. Although inflation is currently in a better position than it was last January, the Fed’s primary challenge remains bringing inflation back to its 2% target.
While many Fed observers believe another rate hike is unlikely, they anticipate the Fed will maintain steady rates for an extended period rather than raising them again. Ellen Zenter, chief U.S. economist at Morgan Stanley, remarked in an interview that nobody expects the Fed to implement another rate hike.
The key question now revolves around how long the Fed will hold rates at their current levels.