Dallas Federal Reserve Bank President Lorie Logan said on Thursday that the latest data and rising borrowing costs in the bond market provide policy space for the central bank to carefully consider the next steps in monetary policy actions.
Logan said at a gathering of money market professionals at New York University that "we still have some time" to decide whether to raise interest rates again or maintain interest rate stability. She pointed out that the tense financial environment is beneficial and partially reflects the tightening of monetary policy.
Lorie Logan acknowledges that progress has been made in controlling inflation, but it is still uncertain whether price pressure is falling towards the central bank's 2% target. The still strong job market may need further deceleration to help the central bank achieve its inflation targets.
Earlier on Thursday, Fed Chairman Powell said at an event in New York that if the economy does not slow down, more interest rate hikes may be needed, but the actual borrowing costs caused by the rise in treasury bond bond yields may have been enough to curb the need for the central bank to raise interest rates again.
The next policy meeting of the central bank is scheduled to be held from October 31 to November 1, and financial markets are almost certain that officials will temporarily raise interest rates again. At the September meeting, they kept interest rates between 5.25% and 5.5%.
Although the easing of inflationary pressure has eased the pressure on the central bank to further raise interest rates, officials expected another rate hike before the end of the year at last month's policy meeting. Since then, some central bank officials have stated that interest rates have approached or reached their peak, while others have clearly stated that they do not see the need to raise the federal funds rate again unless inflationary pressures reappear.
Logan said, "My focus is on price stability and what further tightening measures may be needed to achieve our mission
She added that as she attempts to understand whether the rise in yields reflects market adjustments to the economic outlook or an increase in their demand for risk-taking, it is possible that the market will reduce the pressure on monetary policy. If the tension in the financial environment persists, it may reduce the need for further interest rate hikes.
In addition, Logan also evaluated the prospects of the central bank's balance sheet reduction policy. The central bank is making its treasury bond and mortgage bonds of about $100 billion a month not be replaced when they expire. In this process, since the summer of 2022, the assets held by the central bank have decreased by about $1 trillion. Before the central bank can determine whether there are sufficient reserves to end its balance sheet reduction, the current scale of reverse repos absorbed by the central bank from eligible financial institutions (currently over $1 trillion) may need to be reduced to near zero.
He also said that the recent increase in bond yields seems to be orderly. If there is market pressure, the central bank has tools to deal with it, such as the Standing Repo Facility, which can quickly convert treasury bond into cash from eligible financial institutions.