A senior official at the Federal Reserve: Uncertainty is too high, interest rate cuts should be gradual!

Dallas Fed President Logan said she supports slowing down rate cuts as the Fed is normalizing its policy from the highest level in over 20 years.

Logan stated that she remains focused on both aspects of the Fed's dual mandate of inflation and employment, outlining some risks in the economic outlook that justify a more cautious pace of rate cuts. While she does not have a voting right this year, Logan expressed her support for the Fed's decision to cut rates in September.

In prepared remarks at an event in Houston on Wednesday, Logan said, "Following last month's 50 basis point cut in the federal funds rate, it may be more appropriate now to gradually return to a normal policy stance to best balance the risks to our dual mandate objectives."

The FOMC unexpectedly cut rates by 50 basis points last month, exceeding the normal level of 25 basis points, citing signs of weakness in the labor market and inflation falling near the Fed's 2% target.

Most Fed officials predict another 50 basis point cut this year, meaning 25 basis points at each of their remaining two meetings. Seven officials support only a 25 basis point cut, while two officials expect no further cuts.

Logan last spoke about the economy and monetary policy in June, appreciating the continued decline in price pressures and calling inflation broad-based. She added that despite some cooling, the labor market remains healthy.

Logan stated that monetary policy remains restrictive and should continue to dampen demand for housing and other services.

Logan said, "Inflation and the labor market are not far from our targets, rather than severely overheated. Easing policy will help prevent the labor market from cooling more than necessary to bring inflation back to target in a sustainable and timely manner."

However, she pointed out that looking ahead, there are uncertainties in both aspects, so rate cuts should proceed at a more cautious pace.

Logan noted that there are still some upside risks to inflation, with consumer spending and economic activity remaining strong, and further easing of financial conditions could boost demand. She said, "I still see significant risks that inflation could stall above our 2% target."

The Dallas Fed President also pointed out that the current labor market is more difficult to interpret. Data revisions, accelerated immigration, natural disasters, and strikes, including recent actions by East Coast and Gulf Coast dockworkers, have made the labor market conditions more complex.

Logan said, "These risks suggest that the FOMC should not rush to lower the federal funds target rate to 'normal' or 'neutral' levels, but should gradually cut rates while monitoring the behavior of financial conditions, consumption, wages, and prices."

Logan reiterated that in a scenario of increased investment and potentially faster productivity growth, the "neutral rate" (neither restraining nor stimulating economic growth) may now be higher. Slowing down the pace of rate cuts will allow policymakers to better understand the exact position of the "neutral rate." **

Logan said, "In this uncertain environment, gradually lowering the policy interest rate will allow us time to assess the restrictiveness of monetary policy and reduce the risk of excessive rate cuts inadvertently pushing up inflation."

Other policymakers also advocate for acting at a slower pace, with Federal Reserve Chairman Powell urging not to assume that the Fed will continue to cut rates by such a large magnitude. The labor market report released last week showed strong hiring in September, leading to reduced bets on a significant rate cut at the Fed's November meeting. The market now expects the Fed to cut rates by 25 basis points in November, followed by another 25 basis points in December