The first half of the year has seen higher-than-expected inflation rates, leading Dallas Fed President Lorie Logan to urge the Federal Reserve to raise interest rates in order to cool down the economy. Speaking at the annual meeting of the Central Bank Research Association in New York, Logan stressed the need for a more restrictive monetary policy due to the continued projection of above-target inflation and a stronger labor market.
Expressing concern over the sustainability and timeliness of inflation returning to target levels, Logan emphasized the importance of following through on the signal sent by the Fed in June. While the benchmark interest rate remained unchanged at 5%-5.25% during that time, the release of an updated dot plot revealed that two more rate hikes were expected later in the year.
Logan, a voting member of the Fed’s interest rate committee, believed that a June rate hike would have been appropriate but acknowledged the need for a gradual approach in light of the challenging and uncertain economic environment. Rejecting arguments from Fed doves that the economy would slow down due to the consequences of previous rate hikes, she pointed out signs of improvement in the housing market. However, she cautioned that this could pose an upside risk for inflation in the future.
Meanwhile, traders in derivative markets are confident that there will be a 25-basis point hike in July. On Wall Street, stocks were lower in early trading following strong jobs data from ADP. Furthermore, the yield on the 10-year Treasury note rose above 4%.