Dallas Federal Reserve President Lorie Logan offered a measured outlook on the U.S. economy, emphasizing cautious optimism while acknowledging that key uncertainties remain. Speaking at an event hosted by Columbia University in New York, Logan noted that inflationary pressures may ease as the economic effects of tariffs begin to fade. However, she stopped short of signaling what the Federal Reserve’s next policy move might be.
Importantly, Logan says inflation is moderating and believes the Fed’s rate stance is appropriately set to manage risks, reflecting her view that current policy is balanced — neither overly restrictive nor too loose.
Inflation Outlook: Progress, But Not Yet Victory
Logan described herself as “cautiously optimistic” that inflation is gradually heading back toward the Federal Reserve’s 2% target. While recent trends suggest some moderation, she emphasized that the journey is far from complete.
She acknowledged that while the current monetary stance appears to be working, she is not entirely convinced that inflation is firmly on track to reach the Fed’s goal. Persistent uncertainty surrounding trade policies — especially following the recent decision by the Supreme Court of the United States to strike down several import tariffs introduced under Donald Trump — adds another layer of unpredictability to the economic outlook.
The ruling has created ambiguity around how tariff refunds or policy reversals might influence price levels. According to Logan, the central bank is closely monitoring these developments but does not yet have a clear view of their long-term effects.
Strong Demand Could Complicate Disinflation
While inflation may be cooling, Logan warned that robust economic activity could slow the pace of further declines. She pointed to supportive fiscal policy, favorable financial conditions, strong consumer spending, and continued business investment — particularly in artificial intelligence — as factors that could keep demand elevated.
If demand continues to outpace supply, inflation could stabilize above the desired level rather than falling further. That risk, she suggested, remains real.
Still, Logan reiterated that she believes the current policy framework is well positioned to handle potential risks. The Federal Reserve, she noted, must remain vigilant on both sides of its dual mandate: maintaining stable prices while supporting maximum employment.
A Look Back at Recent Rate Decisions
Last year, the Federal Reserve reduced its benchmark interest rate by 75 basis points, bringing it into a range of 3.50% to 3.75%. The move aimed to provide support to a softening labor market while maintaining enough restraint to prevent inflation from reaccelerating.
Not all policymakers were comfortable with those reductions. Inflation remained well above target, and price pressures had intensified in part due to higher tariffs. Despite that, markets are currently pricing in the possibility of additional rate cuts later this year.
Logan, who holds a voting seat on the Federal Open Market Committee (FOMC) this year, supported the central bank’s decision to hold rates steady at its late-January meeting. Her stance suggests a preference for patience as policymakers assess incoming data.
Money Market Liquidity and the Fed’s Balance Sheet
Beyond inflation and interest rates, Logan also addressed the Federal Reserve’s approach to managing liquidity in money markets.
The central bank continues to maintain a sizable balance sheet, partly to ensure adequate reserves in the financial system. However, Logan noted that advances in payment technology and potential regulatory adjustments could eventually reduce the amount of reserves banks need to hold.
She expressed concern that current regulations may have unintentionally locked up large volumes of highly liquid assets within the financial system. A thorough review of these rules, she suggested, may be warranted.
Rethinking the Fed’s Policy Target
Logan also reiterated her support for a structural shift in how the Federal Reserve implements monetary policy. Instead of targeting the federal funds rate, she believes the central bank should consider using a repo market rate as its primary benchmark.
In her view, repo rates provide clearer signals about money market conditions and overall financial tightness. Such a change could enhance transparency and improve the effectiveness of policy transmission.
The Bottom Line
Lorie Logan’s comments reflect a central bank navigating a delicate balancing act. Inflation appears to be easing, but uncertainties — particularly around tariffs, fiscal policy, and strong demand — remain significant.
For now, policymakers are opting for steadiness rather than dramatic shifts. As Logan says inflation is moderating and believes the Fed’s rate stance is appropriately set to manage risks, the Federal Reserve seems content to watch, wait, and respond carefully to evolving economic conditions.
The coming months will likely determine whether this cautious approach proves sufficient — or whether more decisive action will be needed to steer inflation firmly back to target.
