Logan's message, with numbers to match
If you were hoping the Fed was done, Lorie Logan is not there yet. The Dallas Fed chief, who votes on policy this year, said Thursday that interest rates likely need to climb further to rein in inflation. In prepared remarks at a Dallas Fed event, she put a figure on it: "I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals." Drawing on her more than 20 years at the New York Fed's markets desk, Logan also addressed the near term: "At minimum, a few additional increases in the target range would undo the FOMC's risk-management cuts from last fall," noting that the Fed implemented 75 basis points of rate increases last year. Her end state is clear: make policy modestly restrictive so the economy can sustain both maximum employment and stable prices.
Yields are doing some of the lifting
Logan zeroed in on the jump in Treasury yields in recent weeks. She said market participants initially tied the move to stronger expected growth and a higher neutral rate, but models now show term premiums are also rising. That premium is the extra return investors demand to hold longer-dated bonds instead of shorter ones.
As she put it, "Higher term premiums can slow the economy, reducing the need to tighten monetary policy." The bond selloff this year has pushed the 30 year yield up by 64 basis points since June. Meanwhile, at the September meeting, policymakers lifted rates by a quarter point - the first increase in three years - and the median projection pointed to one additional increase this year.
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The calendar and the odds
Some of Logan's colleagues signaled the Fed can take its time on the next move. Vice Chair Philip Jefferson and New York Fed President John Williams said officials could watch how the data evolve in coming weeks before deciding; along with Chairman Kevin Warsh, the trio is often referred to as the central bank's leadership troika. After those remarks, traders pulled back expectations for an increase at the Oct. 27-28 meeting.
Federal funds futures now imply a 28% chance of a hike next month, down from 70% earlier this week. After October, officials meet again in December.
What it means for your wallet
Logan said she will keep watching yields and the broader economy to judge what level of rates applies genuine restraint. If term premiums keep climbing, they can do part of the slowing for the Fed. Separately, she said that, as of now, she expects the policy target range will still need to increase by at least another half percentage point. Either way, the path of borrowing costs filters into mortgage quotes, auto loans, and credit card APRs - and how long those rates stick around.
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