Dallas Fed President Lori Logan on Saturday became the latest policymaker to try to temper the market's pessimistic interpretation of the central bank's current policy stance, saying another rate hike could not be ruled out.
Logan said she was concerned about the decline in long-term interest rates that began in November. Treasury yields fell after markets began to sense that the Federal Reserve may not raise interest rates again.
Financial conditions eased further after the Fed's December policy meeting, with markets now anticipating six interest rate cuts starting in March. Market expectations were tempered on Friday in the wake of stronger-than-expected December jobs data and the 10-year Treasury yield BX:TMUBMUSD10Y rose to the highest level since December.
In her speech to the American Economic Association in San Antonio, Lujan said easier financial conditions could boost the economy and fuel inflation, threatening the progress the Fed has made in reducing price rises since the summer.
“Given the easing of financial conditions in recent months, we should not take the possibility of another rate hike off the table now,” Logan said.
“We cannot rely on maintaining price stability if we do not maintain sufficiently restrictive financial conditions,” she added.
She said that while inflation today is in a much better position than it was last January, the challenge facing the Fed is to bring inflation back to the 2% target.
Overall, many Fed watchers believe there is a high ceiling for raising interest rates again. They believe the Fed is more likely to keep interest rates steady — a policy it calls “higher for longer” — than to raise interest rates again.
“Nobody thinks they're going to have to deliver another hike. The whole debate is really how long are we going to last here,” said Ellen Zenter, chief U.S. economist at Morgan Stanley, in an interview with MarketWatch.
