Fed's Logan calls for '50 bps or more' in rate hikes

WASHINGTON: The US central bank will need to raise short-term borrowing costs by at least another half of a percentage point to turn monetary policy "modestly restrictive" and get inflation back on track to the Federal Reserve's 2.0 per cent goal, Dallas Fed President Lorie Logan said on Thursday.

The Fed's quarter-point policy rate increase last month, to its current range of 3.75 per cent-4.00 per cent, was "an important first step" in tightening policy, Logan said in remarks prepared for Texas business executives and community leaders at the regional Fed bank's headquarters.

"Still, I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals," she said. "We must restore price stability."

The economy is strengthening and the labour market is well balanced, she said. And though inflation is falling as transitory factors fade, it does not look like it will go much lower than 2.5 per cent without further rate hikes.

"A few additional increases in the target range would undo the FOMC's risk management cuts from last fall," Logan said, referring to the Fed's policy-setting Federal Open Market Committee, which cut the policy rate 75 basis points over the final three meetings of last year.

Logan's remarks came on a day that the benchmark 10-year Treasury note yield touched a 24-year high before falling back to around 5.24 per cent.

Higher long-term bond yields show market participants expect strong economic growth and a higher Fed policy rate, Logan said, though they may also reflect higher term premiums, which "can slow the economy, reducing the need to tighten monetary policy."

The exact level of the policy rate that will be needed to create some restriction is uncertain, she said, and changes over time depending on the broader financial environment.

"I will continue to watch labour markets, prices, growth, consumption and financial conditions to evaluate whether policy is becoming restrictive."