Dallas Fed's Logan Says Fed Needs At Least Two More Rate Hikes, Possibly at a Faster Pace, After 0.4% October CPI

Since the Fed's September quarter-point hike, its first in three years, then a hold at the Oct. 27-28 meeting, the debate inside the central bank has moved from whether to raise again to how fast. Tuesday, Nov. 10, pushed it further.

Dallas Fed President Lorie Logan told a joint Dallas and Kansas City Fed energy conference in Houston that the rate-setting committee "needs to implement at least two more 25-basis-point rate increases." Her prepared remarks added a new wrinkle: "It may be possible to move more rapidly this winter than the FOMC has moved so far this fall."

Logan first laid out the "at least two" count on Oct. 30 at Davidson College in North Carolina. What changed Tuesday is the timing. She also said it would make sense to pause after those hikes and assess whether more is needed. She votes on the committee this year.

Waller puts 50 basis points on the table

The same day, Fed Governor Christopher Waller said in London that a half-point hike "should be considered at the December meeting." He said a quarter-point move would be his preference if October inflation cooled, but that a monthly core CPI increase of about 0.3% or higher would justify a bigger response.

"Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," Waller said.

The Bureau of Labor Statistics then reported October core CPI at 0.3%, the third straight month at that pace. That is the threshold Waller named.

What the October CPI showed

Headline consumer prices rose 0.4% in October after a 0.6% jump in September. The details:

• Energy: up 0.7%, after a 5.2% surge in September. Gasoline rose 1%, versus 9.1% the previous month.
• Food: up 0.5%.
• Shelter: up 0.3%, accounting for more than 30% of the monthly headline rise.
• Core services excluding housing: up 0.4% in October and running at an annual rate of nearly 5.5% over three months. Fed officials watch this gauge closely.

The BLS did not publish year-over-year figures for October because it could not collect data during last year's government shutdown. The New York Times calculated that overall prices were about 4% higher than a year ago, up from 3.7% in September, with core up about 2.8%. That is the Times' own estimate, not an official number.

Waller said September inflation by the Fed's preferred gauge, the PCE price index, stood at 3.7% annually, with core at 3.1%. The Fed's target is 2%. Logan told the Davidson College audience it is "unacceptable" that inflation has been above target for nearly six years.

Logan said Tuesday she is concerned the October PCE reading, due later this month, could show a similar pickup.

A committee that is not unanimous

The October hold passed 10-2. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of another quarter-point hike. Logan did not dissent, though she has said the target range should be at least 50 basis points higher.

Her defense of the hold: with markets volatile over tech investment and geopolitics, "adjusting policy more gradually can help households, businesses and market participants adapt to higher rates." She argued that skipping a meeting does not change where policy ends up.

St. Louis Fed President Alberto Musalem, a non-voter this year, said in a separate speech on Oct. 30 that "additional firming of monetary policy will be necessary, and soon."

Logan's stance also cuts against Fed Chair Kevin Warsh's approach. Warsh took over in May and has avoided forward guidance, telling an IMF-World Bank audience he would not prejudge the committee's rate decisions. Logan has argued the opposite: that making the destination clear helps the economy adjust.

The case for patience

Not everyone inside or around the Fed wants to move fast. Vice Chair Philip Jefferson said in an Oct. 1 speech that he and his colleagues "will need to come to our own judgment, which may take more time" on whether inflation will return to target quickly enough.

Former Dallas Fed President Robert Kaplan has said he does not think the economy is overheating, and that "some of this inflation stickiness is due to structural issues, particularly the oil spike." Economists cited by the Epoch Times have warned that hiking into a supply shock risks damaging parts of the economy that are already sluggish.

Logan's response is that higher long-term market rates reflect investors' belief that "monetary policy has work to do," not an independent drag on growth. She called financial conditions a tailwind.

Markets react

Two-year Treasury yields rose more than 0.1 percentage point Tuesday to 4.67%, according to the Times, as investors bet on more tightening. Before the CPI release, traders had penciled in December for the next quarter-point increase.

The federal funds target remains 3.75% to 4.00%. The next decision comes Dec. 8-9, and the October PCE report, due later this month, is the last major inflation reading before then. Whether the committee goes with 25 basis points or Waller's 50 is the open question.