Dallas Fed President calls for caution in interest rate policy, urging against hasty actions due to short-term inflation decline

According to the Zhitong Finance APP, Lori Logan, President of the Federal Reserve Bank of Dallas, stated on Friday that the Federal Reserve should remain cautious in the coming months, even if inflation approaches the 2% target, it does not necessarily mean there is room for further rate cuts. Her remarks again emphasize that interest rate policy should be cautious and not act rashly due to short-term declines in inflation.

Logan stated, "Even if the inflation data improves and approaches the 2% target, I still believe we should remain cautious. Because if the labor market and the overall economy remain strong, it does not necessarily mean there is room for rate cuts."

Logan's comments echoed her statements from last week. She previously mentioned that the current level of interest rates may be close to a "neutral" level, which neither stimulates economic growth nor excessively suppresses economic activity. Therefore, even if inflation slows, the necessity for further rate cuts in the short term remains questionable. "Currently, how tight monetary policy is remains a key issue, so we need to act cautiously."

Logan pointed out that the Federal Reserve currently has ample time and conditions to assess the latest economic data. If future data continues to show a robust labor market and moderate inflation decline, the Federal Reserve is expected to achieve a "soft landing"—successfully controlling inflation without triggering an economic recession. She emphasized that her focus remains on maintaining price stability and ensuring the Federal Reserve can achieve the 2% inflation target.

The Federal Reserve decided to keep the benchmark interest rate unchanged at the monetary policy meeting on January 28-29. Previously, the Federal Reserve had cut rates by 1 percentage point in three meetings at the end of 2024, but recently several Federal Reserve officials indicated that they would like to wait for inflation to decline further and observe the impact of President Trump's economic policies on the market before deciding whether to adjust rates further.

Trump's economic policies cover various areas such as tariffs, tax cuts, and immigration, which may exacerbate uncertainty in the economic outlook. Economists warn that these policies could push up inflation, making the Federal Reserve more cautious on the issue of rate cuts.

Latest data shows that the U.S. Consumer Price Index (CPI) rose by 0.5% in January, the largest increase since 2023. The core CPI (which excludes food and energy price fluctuations) also rose more than market expectations, and this data is a key inflation measure that the Federal Reserve focuses on.

Logan stated, "The next few months are crucial for us, and we must closely monitor economic data." She added, "The beginning of the year may be a time for businesses to adjust prices, especially when the economy remains strong."