By Lindsay (NYSE:LNN) Dunsmuir
(Reuters) -A U.S. government report showing consumer prices increasing less than expected in October is "welcome relief," Dallas Federal Reserve President Lorie Logan said on Thursday, even as she cautioned that the U.S. central bank remains in a protracted battle against high inflation.
"This morning's CPI (Consumer Price Index) data were a welcome relief, but there is still a long way to go," Logan said in a speech to an economics conference focused on energy hosted by the Dallas Fed and Kansas City Fed in Houston, Texas. "Inflation is much too high."
The Fed last week raised rates by 75 basis points for the fourth consecutive meeting, but several policymakers, including Fed Chair Jerome Powell, since then have signaled they hope to shift to smaller hikes in borrowing costs as soon as their next meeting in December to allow time for the economy to absorb the swiftest tightening of monetary policy in 40 years.
The closely watched inflation data, released earlier on Thursday, provides support for the central bank to dial back its hefty rate hikes, and Logan also backed such an approach.
"I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving," Logan said, even as she warned markets not to confuse a slower pace of monetary policy tightening with easier policy.
Logan also made clear such a decision to slow the pace of rate hikes, for her, is not "particularly closely related to incoming data," instead preferring to look at the Fed's policy strategy as a whole in terms of the ultimate level for rates, the time spent there and factors determining further increases or decreases.
The Fed's rate-setting committee "should adjust other elements of policy to deliver appropriately tight conditions even as the pace slows. We must remain firmly committed to our 2% inflation goal," Logan said.
The Dallas Fed chief, appointed to the post in August, was previously the head of market operations for the New York Fed.
She used that expertise on Thursday to weigh in on how the financial system was faring as the central bank attempts to cool demand across the economy.
"So far, I believe we are seeing a normal financial market response to tighter monetary policy," Logan noted. "While liquidity conditions in key financial markets have been strained, those strains appear so far to result primarily from high economic uncertainty and volatility that raises the costs of market-making, rather than the other way around."
Nevertheless, it is important to remain attentive to any unexpected responses to further policy tightening, Logan said.