Fed’s Logan Says Higher Treasury Yields May Reduce Need To Raise Rates

Federal Reserve Bank of Dallas President Lorie Logan said that although the key U.S. interest rate may have to continue to rise to bring inflation down, the recent jump in Treasury yields can reduce that need.

“Higher term premiums result in higher term interest rates for the same setting of the Fed funds rate, all else equal,” Logan said in prepared remarks for the annual meeting of the National Association of Business Economics.

“Thus, if term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening to achieve the FOMC’s objectives.”

Yields on the 10-year U.S. Treasury rose to 4.8% Friday, their highest level since 2007. The U.S. bond market is closed Monday for the Columbus Day holiday.

Logan, who is a voting member of the FOMC, said that inflation data have been “somewhat uneven,” despite the progress seen during the summer.

“It is still too soon to say with confidence that inflation is headed to 2% in a sustainable and timely way,” she said.

“I anticipate that we will need continued restrictive financial conditions to return inflation to 2 percent in a timely way and sustainably achieve our goals of maximum employment and price stability.”

The Fed maintained its benchmark rate in the range of 5.25% to 5.5% on Sept. 20, signaling that another hike could be necessary this year. The minutes of that meeting will be released Wednesday.

Annual inflation in the U.S. accelerated to 3.7% in August from 3.2% in July, boosted by higher gas prices. The consumer price index for the month of September will be released on Thursday.

The core Personal Consumption Expenditure (PCE) index, which is closely followed by the Fed to decide on interest rates, rose 3.9% in the 12 months through August, from 4.3% in July.