Dallas Fed's Logan calls for rate hikes as inflation stalls at 3.4%

Dallas Federal Reserve President Lorie Logan called for modestly higher interest rates on Thursday, arguing that current monetary policy is failing to push inflation back to the central bank’s 2% target. Her comments mark a direct challenge to market expectations, which currently price only a 12.3% chance of a hike at the upcoming July 28-29 meeting.

Logan warned that inflation is currently tracking toward the "mid 2's" rather than the Fed's objective. She pointed to core PCE inflation at 3.4%, a figure that has risen since December, and noted that market-based non-housing core services inflation has shown zero progress on a 12-month basis since mid-2024. While she acknowledged a June CPI decline driven by energy and housing, she dismissed it as fleeting: "One month of relief is not enough. It is time to finish the job of restoring price stability."

A resilient employment picture gives the central bank cover to maintain a restrictive stance, with the unemployment rate averaging 4.3% in the first half of the year alongside 92,000 average monthly job gains. Logan argued this labor market stability removes a key obstacle to tightening. "If inflation is not heading all the way to 2 percent on its own, then at least some policy restriction is needed to help get it there," she said. "Better modest restriction now than severe restriction later."

Investors are currently looking toward September or October as the more likely window for any tightening. However, Logan stopped short of committing to a specific timeline or magnitude for an increase.

Her stance deepens a visible divide at the Federal Reserve, putting her at odds with New York Fed President John Williams, who argued on Wednesday that inflation has peaked and rates should hold steady. Instead, she aligns with Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari, who both expect a hike by year-end. Logan also flagged upside risks, highlighting Middle East conflicts and the potential for AI investment demand to broaden inflation beyond computer chips.