Speaking at a joint energy conference, Logan said the current federal funds rate remains below a level she considers modestly restrictive.
- Logan said the FOMC needs at least two more 25-basis-point hikes, followed by a pause to assess economic and financial conditions.
- Traders now see a 100% chance of a December rate hike, up from 84% a day earlier, according to CME FedWatch.
- Gradual approach amid financial-market volatility could reduce the risk of an unnecessarily sharp economic slowdown, said Logan.
Dallas Federal Reserve President Lorie Logan expressed concerns Tuesday that October’s personal consumption expenditures (PCE) inflation could accelerate, while suggesting policymakers may be able to raise interest rates at a faster pace this winter.
Speaking at a joint energy conference hosted by the Dallas and Kansas City Federal Reserve banks after a hotter-than-expected Consumer Price Index (CPI) report, Logan said: “I am concerned that PCE inflation could rise when we receive those data for October in a couple of weeks.”
Logan Warns Inflation Pressures Extend Beyond Energy
October’s CPI rose 0.4% month over month, easing from September’s 0.6% increase, while core CPI, which excludes food and energy, advanced 0.3%.
Logan said inflation pressures extend beyond energy disruptions and tariff-affected goods, pointing to persistent price increases in core services. “Tighter policy will be necessary to appropriately balance the outlook and risks for inflation and employment,” she said.
Rate Hikes This Winter?
The Dallas Fed President reiterated that the Federal Open Market Committee (FOMC) needs at least two additional 25-basis-point rate increases. However, she left room for a faster pace of tightening.
“It may be possible to move more rapidly this winter than the FOMC has moved so far this fall,” Logan said.
The Fed raised rates by 25 basis points in September before maintaining status quo in October. Logan said a gradual approach amid financial-market volatility could reduce the risk of an unnecessarily sharp economic slowdown.
She estimated that the current federal funds target range remains at least 50 basis points below a level that would make policy modestly restrictive. Logan said pausing after two additional increases would allow policymakers to assess economic and financial conditions before deciding whether further action is warranted.
According to the CME FedWatch Tool, traders see a 100% probability of a December rate hike, up from 84% a day earlier, with an 87.5% chance of a 25-basis-point increase and a 12.5% chance of a 50-basis-point increase.
Strong Growth Supports Logan’s Outlook
Logan described economic growth as strong, citing annualized third-quarter gross domestic product (GDP) growth of 3.4% and unemployment just above 4%. She highlighted the role of artificial intelligence (AI) in driving business investment.
Real business equipment investment rose 14% year over year, with computers, peripherals and communications equipment used in data centers accounting for more than 80% of that growth.
Logan said investment was broadening across the AI supply chain, with industrial machinery contributing about five percentage points to annualized equipment investment growth in recent months, including semiconductor manufacturing equipment, gas turbines and electrical infrastructure.
The next inflation test will be the October PCE release on Nov. 25, followed by the Fed’s Dec. 8–9 policy meeting.
Treasury Yields Rise After October CPI Print
The 10-year Treasury yield climbed 14 basis points to above 5% following hotter-than-expected October inflation data and expectations of further Federal Reserve tightening. The 30-year yield edged 12 basis points higher to 5.3%.
On Stocktwits, retail investors’ sentiment around the iShares 20+ Year Treasury Bond ETF (TLT), which tracks long-term U.S. Treasury bonds, and the iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term U.S. Treasury bonds, remained ‘bearish’.
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