Dallas Federal Reserve President Logan called for a moderate rate hike. The slight cooling of monthly inflation is not enough to restore price stability.

Dallas Fed President Lorie Logan said on Thursday that despite the slight improvement in U.S. inflation data released this week, there is still a significant gap to achieving the Fed's 2% inflation target. She believes that a moderate increase in interest rates would be more helpful in achieving price stability and warned that if action is not taken promptly, more aggressive rate hikes may be needed in the future to curb inflation. As a voting member of the Federal Open Market Committee (FOMC) this year, Logan said in a speech in Houston that persistently higher-than-target inflation continues to burden American households, and the Fed needs to take action. "I currently believe that a moderate increase in interest rates would be more helpful in balancing the outlook and risks facing the Fed's dual mandate. Every month of higher-than-target inflation continues to erode the budgets of American families." Data released earlier this week showed that the U.S. Consumer Price Index (CPI) fell by 0.4% month-on-month in June, the largest monthly decline since April 2020; the Producer Price Index (PPI) fell by 0.3%. A decrease in energy prices was the main factor driving the cooling of inflation, and the rate of increase in prices for core items such as housing also slowed down. However, Logan believes that the improvement in single-month data is not enough to prove that the inflation issue has been resolved. Data shows that the U.S. CPI rose by 3.5% year-on-year in June, and the PPI rose by 5.5% year-on-year, both significantly higher than the Fed's 2% inflation target, with U.S. inflation remaining above target levels since early 2021. "An improvement in one month is far from enough; now is the time to complete the task of restoring price stability," Logan said. "In monetary policy, like playing ice hockey, you have to skate to where the puck is going to be. Unfortunately, it seems that inflation is not going to naturally fall back to 2%." She pointed out that even though energy prices have fallen recently and the impact of tariffs has diminished, both traditional inflation indicators and core inflation indicators excluding housing show that U.S. inflation remains significantly above target. Logan said that if inflation cannot naturally fall back to 2%, the Fed will need to continue to maintain a certain degree of policy restraint. "If high inflation eventually solidifies, then more aggressive rate hikes will have to be taken in the future, and the labor market will pay a bigger price at that time. It's better to moderately increase interest rates now than to significantly tighten policy in the future." Recently, several Fed officials have stated that if inflation does not continue to improve, they do not rule out further tightening of monetary policy. However, compared to other officials, Logan is one of the few who clearly support policies that entail moderate rate hikes. According to the CME Group's FedWatch tool, the market generally expects the Fed to raise rates by 25 basis points later this year, possibly in September or October. For the next FOMC meeting on July 28-29, the market predicts a probability of rate hike of only about 12.3%. However, Logan did not explicitly state whether she would support a rate hike at the July meeting, nor did she specify how much further she believes rates need to be raised.