Rate cut was unnecessary and Fed shouldn’t do it again in December, says Logan

(Reuters) – The Federal Reserve should not have cut interest rates this week and should not do so again in December, Dallas Fed President Lorie Logan said on Friday, citing a “balanced” labor market that does not need immediate support and inflation that will remain above the 2% target for a long time.

“This economic outlook did not justify a cut in interest rates,” Logan said in a speech prepared for a Fed banking conference in Dallas. “I saw no need to cut rates this week. And it would be difficult to cut them again in December unless there is clear evidence that inflation will fall faster than expected or the labor market will cool more quickly.”

Logan’s remarks follow the Fed’s decision on Wednesday to cut its benchmark interest rate for the second time this year by 0.25 percentage points to a range of 3.75% to 4%. Fed Chairman Jerome Powell said the measure aims to prevent an even greater slowdown in the job market.

According to him, a new interest rate cut in December is not inevitable, mainly due to the lack of official economic data, including inflation and unemployment indicators, while the federal government shutdown continues.

Logan, who this year does not have voting rights on the Fed’s monetary policy committee, said private sector data, state-level unemployment claims and the Fed’s own network of business and community contacts give the central bank visibility into the economy. According to her, the outlook is far from worrying.

Logan said consumption has slowed but still exceeds the long-term trend; stock market gains are boosting demand from wealthier households; large companies are ‘enthusiastically’ investing in artificial intelligence and data centers; and low-income families and smaller businesses are worse off but still stable.

“Risks to the job market are mostly downside,” Logan said, adding that he is closely watching recent layoff announcements and noting that a sudden drop in the stock market and a longer-than-expected government shutdown could pose risks to spending and economic activity.

“The remaining risks to employment are those that we can monitor closely and respond to if they become more likely to materialize, rather than those that currently warrant additional preventive measures.”

However, she said inflation — while not at an emergency level — is still too high and too slow to return to the Fed’s 2% target. “Our obligation to the public is to deliver on that commitment,” she said.

Logan also said he supports the Fed’s decision this week to stop reducing its balance sheet, saying high money market rates demonstrate that the balance sheet is much closer to its normal size.