Fed's Logan calls for higher rates as inflation stays above 2% target

Dallas Fed President Lorie Logan called for modestly higher interest rates Thursday, breaking with the FOMC's consensus to hold as core inflation runs at 3.4%, well above the 2% target.

"Inflation has been too high, for too long, and does not appear to be on track all the way back to 2%," Logan said in remarks prepared for delivery in Houston. "I currently believe modestly higher interest rates would better balance the outlook and risks for the FOMC's maximum employment and price stability goals."

The fed funds rate has sat at 3.50%-3.75% since the June 17-18 meeting, Logan's first under Chair Kevin Warsh, who took office in May. Core PCE inflation — the Fed's preferred gauge — stood at 3.4% in May, up from 3% in December 2025, while headline PCE reached 4.1%. The labor market added 111,000 jobs a month on average over the past three months, a pace Logan described as reflecting strong demand relative to supply.

Logan's dissent risk sets up a potential split at the July 28-29 meeting, where the FOMC must decide whether to hold or hike for the first time since 2023. "Better modest restriction now than severe restriction later," she said. "It is time to finish the job of restoring price stability."

Logan pointed to three sources of upward pressure on prices: tariffs, energy costs from the Middle East conflict, and demand spillovers from the artificial-intelligence buildout. AI-related investment has driven price increases for semiconductors, computer chips, servers and peripherals, she said, adding that shortages of memory and storage chips are pushing up prices for retail goods that use those components.

"AI and other new technologies may eventually generate productivity gains that will boost supply and push down on prices," Logan said. "But the potential size and timing of those gains are uncertain. The demand effects are here already."

Consumer price inflation moderated in June, Logan acknowledged, but she described the path back to 2% as "tenuous" — "more a hope than a likelihood."

The call for tighter policy places Logan in a growing minority at the Fed who see the current rate setting as insufficiently restrictive. At the June meeting, all 19 FOMC participants supported the hold decision, but Logan's public break suggests that unity may fray at the July gathering.

Fed Governor Christopher Waller, speaking three days earlier on July 13, described inflation as being "at a crossroads" and said he would need to see several months of lower core inflation readings before feeling confident prices were moving in the right direction. Waller noted that two- and five-year Treasury Inflation-Protected Securities indicate inflation expectations of 2.1% and 2.3%, respectively — anchored near the Fed's target, which he said allows policymakers to move more deliberately.

Logan's hawkish stance contrasts with that anchored expectations picture. She argued the labor market remains solid enough to absorb tighter policy without triggering a recession. The ratio of job vacancies to unemployed workers stands near one-to-one, down sharply from the two-to-one ratio when the Fed began raising rates in 2022, reducing the risk that rate increases would drive up unemployment.

The last time a Fed official publicly broke with the chair's consensus before a meeting was in 2023, when then-Governor Waller expressed support for a pause that ultimately materialized. A rate hike in July would mark the first increase since the Fed held rates steady starting in September 2023.

This article is for informational purposes only and does not constitute investment advice.