We need at least a somewhat restrictive policy to finish the job
In El Paso on Wednesday, Dallas Federal Reserve President Lorie Logan delivered a quiet but pointed warning: the long campaign against inflation may require a harder push before the year ends. For more than five years, prices have run above the Fed's 2% target, and despite a balanced labor market and booming investment, the underlying pressure is not easing — it is accelerating. Logan's message belongs to an older story about the cost of patience, and the compounding difficulty of restoring trust once people stop believing that stability will return.
- Inflation has exceeded the Fed's 2% target for over five years and is now trending toward 2.5%, with the Fed's preferred core gauge rising 3.8% in the twelve months through April — far from the finish line.
- Logan warned that current interest rates may be neutral or even stimulative rather than restrictive, meaning the Fed's primary tool may not actually be slowing the economy at all.
- A war in Iran has pushed fuel costs higher, but the inflation problem runs deeper — rents and food prices are climbing too, broadening the pressure beyond any single category.
- Logan is pushing for rate hikes by late 2026, while New York Fed President John Williams sees no clear direction and calls current policy 'exactly right,' exposing a real fracture inside the Fed.
- The longer inflation stays elevated, Logan cautioned, the greater the risk that the public stops expecting it to fall — a psychological threshold that would make the Fed's job exponentially harder to complete.
Lorie Logan, president of the Dallas Federal Reserve, arrived at a Wednesday event in El Paso with a message that cut against the recent grain of Fed communication: interest rates may need to rise before the year is out. The inflation problem, she argued, is not resolving itself.
On the surface, conditions appear stable. The job market is balanced, companies are investing heavily in artificial intelligence, and financial conditions remain loose. But Logan sees something more troubling underneath: prices have exceeded the Fed's 2% target for more than five years and have recently begun accelerating again. The Fed's preferred core inflation gauge rose 3.8% over the twelve months ending in April. No matter how she sliced the data, Logan said, prices are trending toward 2.5% — not back toward 2%.
"Monetary policy is not restraining the economy," she said, arguing that the current rate level is either neutral or quietly stimulative. "We need at least a somewhat restrictive policy to finish the job." Her concern is not only about prices today, but about expectations tomorrow — if people stop believing inflation will come down, bringing it back under control becomes far harder.
Her position puts her in direct tension with New York Fed President John Williams, who said the same day that he sees no obvious direction for rates and believes policy is "exactly in the right place." The divergence is genuine, and consequential: Logan votes on the rate-setting committee this year, and in April she dissented against language suggesting the next move would be a cut.
The broader backdrop includes oil supply disruptions from a war in Iran, but the inflation pressure extends well beyond energy into rents and food. Logan's message in El Paso was unambiguous: waiting carries its own risks, and the longer the Fed delays, the steeper the eventual cost.
Lorie Logan, who leads the Federal Reserve's Dallas branch, walked into a Wednesday event in El Paso with a message that cut against the grain of recent Fed messaging: interest rates may need to go up before the year is out. The inflation problem, she said, simply isn't going away on its own.
On the surface, conditions look manageable. The American job market is balanced. Companies are pouring money into artificial intelligence. Financial conditions are loose and accommodating. But underneath, Logan sees a stubborn reality: prices have been running above the Fed's 2% target for more than five years, and lately they've started accelerating again. The Fed's preferred inflation gauge—which strips out volatile categories like energy and food—rose 3.8% over the twelve months ending in April. That's not close to target. And Logan worries that if inflation stays elevated much longer, people will stop expecting it to come down. Once that happens, bringing it back under control becomes much harder.
"These conditions indicate that monetary policy is not restraining the economy," Logan said. She added that she's increasingly concerned higher rates may be needed by late in the year to fully restore price stability and balance the Fed's dual mandate of price stability and maximum employment. The current level of interest rates, she argued, is either neutral—doing nothing to cool demand—or actually stimulative, still pushing the economy forward. "We need at least a somewhat restrictive policy to finish the job," she said.
Logan's position puts her at odds with some of her colleagues. Earlier the same day, John Williams, president of the New York Fed, said he sees no obvious direction for rates going forward. "Monetary policy is exactly in the right place," Williams told Yahoo Finance. "I don't see any need to raise or lower rates right now." The divergence reflects genuine uncertainty among Fed officials about what comes next.
Logan, who votes on the rate-setting committee this year, has already signaled her hawkish lean. In April, she dissented when the committee's statement suggested the next move was more likely to be a rate cut than a hike. On Wednesday, she dug in further, walking through various ways to measure inflation and concluding that no matter how you slice the data, prices are trending toward 2.5%—not back toward 2%. She even cautioned that one measure the Fed has been watching closely, the Dallas Fed's trimmed mean inflation gauge, may be understating the problem due to technical factors.
The backdrop for all this is a war in Iran that has disrupted oil supplies, pushing up fuel costs. But the inflation problem extends well beyond energy. Rents and food prices have climbed too. Fed Chair Jerome Powell has defended the central bank's independence and warned about the dangers of political interference, but the pressure to act is mounting. Logan's message on Wednesday was clear: waiting may not be an option. The longer inflation stays high, the harder it becomes to bring it down. And if the public starts to believe high inflation is here to stay, the Fed's job becomes exponentially harder.
Citações Notáveis
These conditions indicate that monetary policy is not restraining the economy. I'm increasingly concerned that higher rates may be needed by late this year to restore price stability.— Lorie Logan, Dallas Federal Reserve president
Monetary policy is exactly in the right place. I don't see any need to raise or lower rates right now.— John Williams, New York Federal Reserve president
A Conversa do Hearth Outra perspectiva sobre a história
Why is Logan singling out the possibility of rate hikes when other Fed officials seem content to hold steady?
Because she's watching inflation refuse to budge. It's been above target for five years. That's not a temporary blip anymore—it's a pattern. She's worried the public will start to expect it.
But the labor market is balanced and AI investment is booming. Doesn't that suggest the economy is healthy?
It does. That's actually her point. The economy is strong enough that current interest rates aren't slowing it down. They're not even neutral—they might be helping it along. So if you want inflation to come down, you need rates that actually push back.
What does she mean by "restrictive" policy?
Rates high enough that borrowing becomes expensive, spending slows, and demand cools. Right now, she's saying we're not there yet.
Is this a lonely position at the Fed?
Not entirely. But Williams on the same day said he sees no clear direction either way. So yes, there's real disagreement about what to do next.
What's the risk if she's wrong and rates go up?
You could slow the economy too much, risk a recession, hurt employment. That's why Williams is cautious. But Logan's risk is the opposite: if you wait too long and inflation becomes embedded in expectations, you'll need even higher rates later.
So this is about credibility?
Exactly. The Fed's power to control inflation depends on people believing it will. If inflation stays high long enough, that belief erodes. Then you're fighting psychology, not just prices.