Statement from Dallas Fed President Lorie Logan on FOMC dissent

At this week’s Federal Open Market Committee (FOMC) meeting, I supported the decision not to change the target range for the federal funds rate. However, I dissented from language in the post-meeting statement that suggests the next adjustment to the target range will most likely be a cut.

The statement says: “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.” This language evolved out of the series of three rate cuts the FOMC made last fall. In that context, “additional adjustments” implies the next rate change, whenever it occurs, will most likely (though not certainly) reduce the target range again. I disagree with that assessment of the policy outlook.

I am increasingly concerned about how long it will take inflation to return all the way to the FOMC’s 2 percent target. Congress charges the FOMC with setting monetary policy to achieve maximum employment and price stability. The FOMC has repeatedly reaffirmed that personal consumption expenditures (PCE) price inflation of 2 percent is most consistent with those mandates. Yet PCE price inflation has exceeded 2 percent for more than five years. To forecast where headline inflation is headed, I look to measures of inflation that strip out extreme price changes or categories where prices are more volatile. Even before recent increases in the prices of energy and other commodities, those measures had been running meaningfully above 2 percent, leaving doubts about how long it will take inflation to return to target. The conflict in the Middle East raises the prospect of prolonged or repeated supply disruptions that could create further inflationary pressures. At the same time, the labor market has been stable, with low unemployment and payroll job gains keeping pace with labor force growth.

The economic outlook is highly uncertain, however. The inflation outlook could improve if tariff-related price increases subside, housing prices continue to soften and commodity supply disruptions resolve quickly. On the other hand, inflation could remain stubbornly high. The labor market could strengthen or weaken amid the crosscurrents of changes in trade patterns, technology, energy costs and immigration. Depending on which of these scenarios materialize, it could plausibly be appropriate for the FOMC’s next rate change to be either an increase or a cut.

When the FOMC gives forward guidance about the likely course of future interest rates, as in the recent post-meeting statement, that guidance is an important policy tool. It influences financial conditions and the economy, and it affects the achievement of the FOMC’s maximum employment and price stability goals. Equally, households and businesses rely on the guidance to make future plans. When the FOMC gives forward guidance, it is important for that guidance to reflect the policy outlook. In light of the two-sided risks to monetary policy, I believed the FOMC should not give forward guidance implying a bias toward rate cuts at this time.