MNI: Fed's Logan - Preferred To Hold Rates This Week

Federal Reserve Bank of Dallas President Lorie Logan said Friday she preferred to hold interest rates steady this week and likely again in December, citing a still-balanced labor market and elevated inflation. She endorsed the FOMC's move to end QT and said "reserve management purchases" may be needed to maintain an ample supply of reserves. 

The FOMC voted to cut rates this week to 3.75%-4%, with Kansas City Fed President Jeffrey Schmid dissenting in favor of a hold and Governor Stephen Miran preferring a 50bp cut. Logan was not a voter on interest rates this year but will vote next year.

"I did not see a need to cut rates this week. And I’d 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 more rapidly," she said in remarks prepared for a Dallas Fed conference on bank funding. 

"The labor market remains balanced and cooling slowly. Inflation remains too high, taxing the budgets of businesses and families, and appears likely to exceed the FOMC’s 2% target for too much longer. This economic outlook didn’t call for cutting rates," 

RISKS WITHIN CONTROL

At 4.3%, the unemployment rate has risen just slightly over the past year, she noted. 

Hiring fell markedly this year but labor supply has fallen at the same time as demand due to changes in immigration policy and labor force participation, capping the amount of slack in the labor market, Logan said. Break-even payroll growth is estimated to have fallen to just 30,000 a month, according to Dallas Fed estimates, she said. 

"The risks to the labor market do lie mainly to the downside," she said. "The FOMC already mitigated downside risks by cutting rates at its previous meeting, in September. The remaining risks to employment are ones we can monitor closely and respond to if they are becoming more likely to materialize, not ones that currently warrant further preemptive action." 

Meanwhile, forecasters expect PCE inflation to end the year at about 2.9%.

"The FOMC’s 2% inflation target is a serious commitment," she said. "Our obligation to the public is to deliver on this commitment." (See: MNI FED WATCH: Powell Leans Against December Cut Expectations)

MAY NEED TO BUY ASSETS

Money market conditions have tightened in recent weeks, making it appropriate to end asset runoff, Logan said. 

After averaging 8-9bp below IORB in the first eight months of 2025, the tri-party general collateral rate (TGCR) averaged slightly above IORB in September and October, she said, noting she views TGCR as "the cleanest single measure of money market conditions." 

There may be room for "modest further decreases" in reserve supply if temporary factors recede, including tax payments, Treasury issuance and banks’ quarter-end and month-end balance sheet adjustments that have pushed repo rates up. 

Once runoff ends, the Fed can further reduce reserve supply by holding assets constant for a time and allowing decreases in reserves to offset trend growth in other liabilities such as currency, she said. 

But if the recent rise in repo rates turns out not to be temporary, "the Fed in my view would need to begin buying assets to keep reserves from falling further and maintain an ample supply of reserves," Logan said, adding size and timing of these reserve management purchases should not be "mechanical." (See: MNI INTERVIEW: Fed Soon To End QT On Funding Strains - Wright)