Lorie Logan, Speech: Restoring Price Stability

Inflation

“Now, there has been some progress on inflation in recent months. But the question for monetary policy is not whether there has been some progress, but rather whether the progress will continue.”

“The evidence I’m looking for to gain confidence in the inflation outlook includes some further and sustained improvement in the inflation statistics, as well as a clear change in the underlying factors—like the imbalance of aggregate supply and demand and resulting very tight labor market—that have been producing high inflation. And I think we need to see the economy evolving more or less as forecasts predict. When inflation repeatedly comes in higher than the forecasts, as it did last year, or when the jobs report comes in with hundreds of thousands more jobs than anyone expected, as happened a couple weeks ago, it is hard to have confidence in any outlook.”

Jobs

“The labor market is important in its own right for monetary policy, given the FOMC’s mandate to achieve both price stability and maximum employment. But in addition, because services prices depend substantially on labor costs, the outlook for sustainably returning inflation to 2 percent hinges in large part on what happens in the labor market.”

“Absent a dramatic rise in productivity, it seems likely that sustainably returning inflation to 2 percent will require substantially lower wage growth. That may take time … Wage pressures have moderated somewhat in the latest national reports on average hourly earnings and employment costs. I’d need to see a lot more data, though, to be convinced the labor market is no longer overheated … To achieve better balance, labor supply will have to increase, or labor demand will have to decrease.”

Fed Funds

“My own view is that, given the risks, we shouldn’t lock in on a peak interest rate or a precise path of rates. After raising rates at a historically rapid pace during 2022, the FOMC decided at our most recent meeting to increase rates by a more historically typical increment of a quarter percentage point. I anticipate we will need to continue gradually raising the fed funds rate until we see convincing evidence that inflation is on track to return to our 2 percent target in a sustainable and timely way.”

“Ultimately, conditions need to be sufficiently restrictive to restore price stability. We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions. And even after we have enough evidence that we don’t need to raise rates at some future meeting, we’ll need to remain flexible and tighten further if changes in the economic outlook or financial conditions call for it.”