(Rueters) – Dallas Federal Reserve Bank President Lorie Logan on Thursday signaled she was ready to keep interest rates on hold for “quite some time” even if inflation drops closer to the Fed’s 2% goal, as long as the labor market does not falter.
She said she would view the combination of slowing inflation and a strong labor market as evidence that monetary policy was not meaningfully restrictive.
While good news, she said in remarks prepared for delivery to a Bank for International Settlements conference in Mexico City, “it wouldn’t necessarily allow the (Fed) to cut rates soon.”
Instead, she said, it “would strongly suggest that we’re already pretty close to the neutral rate, without much near-term room for further cuts.”
On the other hand, she said, “if the labor market or demand cools further, that could be evidence it’s time to ease.”
Last week, citing slower-than-hoped progress on bringing down inflation, the Fed kept its short-term policy rate in the range of 4.25%-4.50%.
Fed Chair Jerome Powell said the central bank was in no hurry to cut it further, adding that it would take further cooling in inflation, or a weakening job market, to prompt further policy easing.
U.S. inflation by the Fed’s targeted measure, the 12-month change in the personal consumption expenditures price index, actually ticked up toward the end of last year, and measured 2.6% in December.
Logan’s skepticism over cutting rates solely on the basis of better inflation puts added focus on the labor market, which has remained strong, with the unemployment rate ticking down last month to 4.1%.
The Labor Department publishes data for February on Friday, and economists expect job growth to cool but not to collapse.
Logan noted there are a range of uncertainties that could affect the Fed’s path, including trade policy under the Trump administration, as well as volatile financial conditions.
“To me, the monetary policy implications of these uncertainties generally come down to whether sustainably restoring price stability requires keeping rates at least at the current level or moving lower,” she said.
(Reporting by Ann Saphir; Editing by David Gregorio)
