Lori Logan, president of the Federal Reserve Bank of Dallas, said that it might take officials some time to know how the economy will respond to tariff and other policy changes, and thus to know how they should adjust interest rates.
Logan outlined various risks facing the economic outlook in a speech at an event held in WACO, Texas on Thursday.
Tariffs may push up prices – perhaps temporarily, but if inflation expectations rise, they may be more persistent. Fiscal policy or regulatory changes may stimulate demand, but economic uncertainties and market fluctuations may also lead to reduced consumer and business spending, thereby dragging down economic growth.
When speaking of the Federal Open Market Committee, which sets interest rates, Logan said, “Currently, the labor market remains strong, the inflation trend is gradually returning to the target level, and the risks to the Federal Open Market Committee’s target are roughly balanced. I think monetary policy is in good condition.”
She added, “It may take quite a long time to know whether the risk balance will shift in a certain direction.”
The Federal Reserve has kept interest rates unchanged at all three meetings so far this year and is expected to do so again during the officials’ meeting in June. The minutes of the policymakers’ meeting from May 6th to 7th show that officials generally believe that the intensification of economic uncertainty means they should be patient in adjusting borrowing costs.
Last month, when the Trump administration initially announced the imposition of higher-than-expected tariffs on US trading partners, Logan said that these tariffs might push up prices and the unemployment rate. As the Trump administration conducts trade negotiations with various countries, many tariffs have been suspended or temporarily reduced.
The latest easing of Sino-US relations has reignited consumers’ optimism. Data released earlier this week showed that consumer confidence rebounded this month after hitting a nearly five-year low in April. Meanwhile, the number of people continuing to claim unemployment benefits has climbed to its highest level since 2021, intensifying concerns that the unemployment rate may rise.
Fed officials expressed concerns that tariffs might put them in a difficult position, forcing them to choose between maintaining high interest rates to curb a new round of inflationary pressure and lowering rates to boost the weak economy.
Logan emphasized on Thursday that the current economic outlook is difficult to predict. She also issued a warning about the impact of rising inflation expectations.
She said, “If the expectation of rising inflation is deeply rooted, inflationary pressure may persist and the cost of reversing inflation will be very high.”
Logan also touched upon the issue of central bank independence, a topic that has recently resurfaced as Trump keeps pressuring the Federal Reserve and Chair Jerome Powell to lower interest rates.
“Research shows that when central banks are not affected by short-term political factors, they perform better in controlling inflation,” Logan said. This pattern has been clearly visible all over the world and even throughout history.
