NEW YORK, Oct 19 (Reuters) – Federal Reserve Bank of
Dallas President Lorie Logan said on Thursday that recent data
and higher bond market borrowing costs give the central bank
space to deliberate on its next monetary policy move.
“We have some time” before having to make the call whether
to raise rates again or hold them steady, Logan said at a
gathering of the Money Marketeers of New York University, citing
a desirable tightening in financial conditions, in part
reflecting the tightening in monetary policy.
Logan acknowledged progress in lowering inflation while
still being unsure that price pressures are ebbing to the Fed’s
2% target. She said a still-strong job market may need to weaken
further to help the Fed achieve its inflation goals.
Earlier on Thursday, Fed Chairman Jerome Powell told a New
York audience that while more rate hikes may be needed if the
economy doesn’t cool, a rise in real-world borrowing costs
generated by the jump in Treasury yields may provide enough
restraint to save the Fed from having to raise rates again.
The Fed’s next policy meeting is set for Oct. 31-Nov. 1,
and financial markets are virtually certain officials will again
refrain from increasing rates,
after leaving rates steady
at their September meeting, at between 5.25% and 5.5%.
While the cooling inflation pressures have taken
pressure off the Fed to increase rates further, officials
penciled in one more increase before the end of the year at
their policy meeting last month.
Since then, a number of Fed officials have said rates
are at or near the peak, while some have said outright they
don’t see another need for a fed funds rate increase short of
renewed inflation pressures.
“My focus is on price stability and what further
tightening may be needed to achieve our mandate,” Logan said.
She added that as she seeks to understand how much of
the rise in yields reflects markets’ adjusting to a stronger
economic outlook or whether they’re adjusting to a bigger need
to be paid for taking on risk, it’s possible that markets will
take some pressure off monetary policy.
If tighter financial conditions are “persistent that
could mitigate some of the need for further increases,” Logan
said.
In her remarks Logan also took stock of the outlook for
the Fed’s balance sheet contraction policy. The Fed is allowing
just shy of $100 billion per month in Treasury and mortgage
bonds it owns to mature and not be replaced, in a process that
has thus far caused central bank holdings to fall by about $1
trillion since the summer of 2022.
Logan said the Fed’s reverse repo facility, which
currently is taking in just over $1 trillion from eligible
financial firms, will likely need to fall to nearly zero before
the Fed can determine if there are enough reserves in the system
to end its balance sheet drawdown.
Logan also said that the recent jump in bond yields has
appeared to be orderly. She said the Fed has tools in place to
deal with market stress if it arrive, such as the Standing Repo
Facility, which can quickly convert Treasury holdings into cash
for eligible financial firms.
(Reporting by Michael S. Derby; Editing by Sandra Maler and
Leslie Adler)