Federal Reserve official Logan: Economic outlook uncertainty intensifies, policy decisions require patient observation

According to the Zhitong Finance APP, Federal Reserve official Lorie Logan delivered a speech this week in Waco, Texas, systematically explaining the complex situation currently facing the U.S. economy. The Federal Open Market Committee member pointed out that under the intertwined effects of tariff policy adjustments, fiscal regulatory changes, and other multiple variables, policymakers may need to observe the economy's actual response to various policies for a longer time before prudently deciding on the interest rate adjustment path.

Logan analyzed that the impact of tariff policy on prices has a dual path: while the direct effect may only trigger temporary inflation, if it leads to a decoupling of inflation expectations, it could create persistent price pressures. At the same time, fiscal expansion or regulatory easing may stimulate demand growth, but economic policy uncertainty and increased market volatility could suppress consumer investment, creating a counteracting drag. This contradiction has already manifested in the latest economic data: the consumer confidence index rebounded from a near five-year low in May, indicating some recovery in market sentiment, but the number of people continuously receiving unemployment benefits rose to its highest level since 2021, highlighting concerns in the labor market.

Regarding the monetary policy stance, Logan believes the current interest rate level is within an appropriate range: "The labor market remains resilient, inflation is steadily returning to policy targets, and the Federal Reserve's risk assessment shows a rare balance." However, she also emphasized that the sustainability of this balance still needs to be observed, "It may take several months to determine whether the risk balance has significantly tilted." This statement aligns closely with the spirit of the Federal Reserve's minutes from early May, where the decision-makers generally believed that patience should be maintained in policy to cope with the escalating economic uncertainty.

It is noteworthy that the recent adjustments to tariff policy by the Trump administration have increased the difficulty of policy assessment. Logan had previously warned that significantly increasing tariffs could raise prices and harm employment. As the U.S. has suspended or reduced several proposed tariffs, market volatility has eased somewhat, but Federal Reserve officials still worry that they may face a dilemma in the future: to guard against inflationary pressures triggered by a new round of tariffs while also being wary of the downside risks brought about by an economic slowdown.

Logan specifically issued a warning regarding the management of inflation expectations: "Once inflationary expectations solidify, it will greatly increase governance costs." When discussing central bank independence, she cited academic research emphasizing that monetary policy free from political interference performs better in controlling inflation, "This pattern has universal applicability across regions and history."

Currently, the market generally expects that the Federal Reserve will maintain interest rates unchanged for the fourth consecutive time at the June meeting. As economic data presents a complex picture of mixed signals, policymakers are facing the most severe decision-making test since the 2008 financial crisis