Fed’s Logan says US central bank must be ‘very cautious’ on rate cuts

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By Ann Saphir

AUSTIN, Texas (Reuters) -Federal Reserve Bank of Dallas President Lorie Logan on Thursday said the U.S. central bank appropriately cut rates last month to guard against the risk of a sharp deterioration in the job market, but said that so far the cooling is gradual and signaled she is not eager to cut rates further.

“We need to be very cautious about rate cuts from here and make sure that we appropriately calibrate policy so that you don’t ease conditions too much and only to have to reverse course, which would be very painful in terms of restoring price stability,” Logan told a classroom of economics students at the University of Texas at Austin’s graduate school of business. 

“With expectations for tariffs and other pressures to lead to inflation trending a bit higher in coming months, my forecast has a little bit slower normalization of the policy path in order to make sure we get all the way to 2%.” 

Logan, who is not a voter on the Fed’s policy-setting committee this year, said she supported the Fed’s September decision to reduce the policy rate a quarter of a percentage point as “insurance” against a sudden rise in the unemployment rate, which in August was 4.3%. 

The government shutdown means the Labor Department will not publish its usual monthly jobs report on Friday, but other indicators suggest that while the labor market is sluggish the unemployment rate did not jump last month.

“My forecast is for that to rise a little bit in coming months, but not too far from the objective,” Logan said. Inflation, however, has been above the Fed’s 2% target for four years and tariffs are pushing it upward, she said. 

“The thing that I worry about is even if it’s a one-time effect, like the economic modeling would suggest, the longer it takes or the more uncertainty there is about these tariff policies, the more risk there is that the short-term inflation expectations that have increased become entrenched over the long term,” Logan said. “The risk of those inflation expectations becoming entrenched has certainly gone up, and so we need to guard against that in thinking about policy.” 

‘FRAGILE’ JOB MARKET ALSO A RISK

Logan, whose visit to Texas’ flagship public university was part of her regular check-ins on local economic conditions, said most indicators suggest the labor market is cooling only gradually and remains broadly in balance.

But the tough job market for new college graduates is a concern, she told the students, many of whom were seniors and already well into their job searches. 

“It’s taking longer to find a job because we’re in this low hiring environment, and that’s something that we really want to pay close attention to because it means that the labor market to me could be more fragile to a potential shock,” she said. “At the same time, we’re not seeing large layoffs either.”  

Logan did not speak directly to how the lack of fresh official data on the economy while the government is shut down would affect her job of monitoring for economic changes that warrant a different outlook for rates. 

But she did say that her conversations with local business leaders have sometimes given her a sense that the economy was stronger than government data appeared to suggest, and made her more cautious than some of her colleagues about lowering interest rates last year.   

(Reporting by Ann Saphir; Editing by Andrea Ricci and Deepa Babington)