Dallas Fed Chief Says She Would Have Opposed This Week’s Rate Cut – Cautions Against December Move

• The rate cut on Wednesday resulted in the federal funds rate now ranging from 3.75% to 4%, in line with market expectations and was the second rate cut announced this year, following a 25 bps cut in September.
• Lorie Logan said that unless inflation falls more sharply or the labor market weakens faster than expected, further easing would be “difficult.”
• Logan said that the FOMC already mitigated downside risks by cutting rates at its previous meeting in September.

Federal Reserve Bank of Dallas President Lorie Logan said on Friday that she would have preferred to hold interest rates steady at this week’s Federal Open Market Committee (FOMC) meeting, where the Federal Reserve announced a cut in the key borrowing rate by 25 basis points.

“I did not see a need to cut rates this week. And I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly,” Logan said at the “The Evolving Landscape of Bank Funding” conference at the Federal Reserve Bank of Dallas.

Fed October Rate Cut

The rate cut on Wednesday resulted in the federal funds rate now ranging from 3.75% to 4%, in line with market expectations, and was the second rate cut announced this year, following a 25-bps cut in September.

The FOMC noted that the economy continues to grow at a moderate pace. It flagged signs of labor market softening, citing a slowdown in job gains and a slight uptick in the unemployment rate.

Logan Leans Against Pre-emptive Policy Moves

Logan added that the FOMC already mitigated downside risks by cutting rates at its previous meeting in September. “The remaining risks to employment are ones we can monitor closely and respond to if they are becoming more likely to materialize, not ones that currently warrant further preemptive action,” she said.

“Inflation remains too high, taxing the budgets of businesses and families, and appears likely to exceed the FOMC’s 2 percent target for too much longer. This economic outlook didn’t call for cutting rates,” Logan highlighted.

She noted that while the government shutdown has reduced the availability of national statistics, a wide range of alternative data sources continues to provide visibility into the state of the economy. 

There have been concerns regarding the federal government shutdown, which has entered its 31st day, resulting in challenges for the Federal Reserve to form its monetary policy decisions due to the lack of sufficient data.

The jobs report was last published in September, for August, while the White House said last week that a government shutdown may prevent the release of the October Consumer Price Index (CPI) data. 

Meanwhile, U.S. equities rose in Friday morning’s trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.51%, the Invesco QQQ Trust ETF (QQQ) surged 0.95%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) gained 0.13%.

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