MNI: Fed's Logan - Policy Clarity Could Take 'Quite Some Time'

It could take quite some time for Federal Reserve officials to gain clarity on the economic outlook, but monetary policy is well-placed to respond to heightened risks for employment and inflation related to trade policy uncertainty, Dallas Fed President Lorie Logan said Thursday. 

"For now, with the labor market holding strong, inflation trending gradually back to target, and risks to the FOMC’s objectives roughly balanced, I believe monetary policy is in a good place. It could take quite some time to know whether the balance of risks is shifting in one direction or another," she said in prepared remarks to a business conference in Waco, Texas. (See MNI POLICY: Fed Cut Impetus Fades Alongside Recession Fears)

Logan described two possible scenarios for the economy as a result of tariff policies. In the first, tariffs would push up inflation temporarily higher. 

"And if expectations of higher inflation became entrenched, inflationary pressures could persist and become very costly to reverse. Stimulative federal fiscal policy or changes in regulations could also boost investment and consumer demand," Logan said. 

Another possibility is economic uncertainty and volatility in financial markets might prompt a slowdown in consumer spending and business investment that would damage economic growth.  "And tariffs could weigh on employment in sectors that rely heavily on imported materials," she said. 

While the risks to both sides of the mandate are now roughly in balance, "if the balance shifts, we’ll be well prepared to respond," said Logan.