Lorie Logan of the US Fed calls for interest rates to be kept stable for ‘a while’

Dallas Federal Reserve President Lorie Logan on Friday called for leaving the policy rate on hold “for a while” while the central bank assesses how much of a drag the current level of borrowing costs is putting on the economy, with rising stock prices one reason to think it won’t be much.In her remarks in Zurich, she reiterated her position that October’s rate cut by the rate-setting Federal Open Market Committee was not justified given excessive inflation and a “roughly balanced” labor market. She said that in September she wasn’t even sure the Fed should have cut rates then.

“With two rate cuts now in place, I would 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 faster,” Logan said Friday. “In the absence of clear evidence justifying further easing, holding interest rates steady for a while would better allow the FOMC to assess the extent of current policy mitigation.”

Elevated asset valuations and historically compressed credit spreads are not only indications “that policy is unlikely to be very restrictive. They are also indications that the fed funds rate needs to offset the tailwinds of financial conditions,” Logan said.

The Fed’s next meeting is December 9-10, and central bankers have expressed widely differing views on what best to do. Some Fed policymakers are calling for a third straight rate cut to address labor market weakness, while others like Logan prefer to be more cautious.

Interest rate futures contracts on Friday reflected expectations for a December rate cut, reversing bets against a December rate cut that had been in place for most of this week. Logan said Friday she remains concerned that inflation will not return toward the Fed’s 2% target, but instead is expected to be around 2.7% over the next year.

Meanwhile, she said, the fact that some workers are having difficulty finding work and that risks to the labor market are mainly skewed to the downside means that slow job growth does not necessarily mean there is more slack in the labor market, and that the recent solution to the government shutdown has taken some short-term risks off the table.