Recap of Dallas Fed's Logan's (non-voter, hawk) comments from the weekend:

Analysis details (13:09)

Logan (non-voter, hawk) spoke at an American Economic Association event on Saturday, with the key focus being her comment that, "if we don’t maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we’ve made", adding, "In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet." 

That adds to Fed's Barkin (2024 voter), who said recently, "Longer-term rates have dropped recently, which could stimulate demand in interest-sensitive sectors like housing... That’s why the potential for additional rate hikes remains on the table." It will be interesting to see if Williams, who is scheduled to speak on Wednesday, also adopts this outlook.

Back to Logan. She posited risks to the soft landing outlook, such as geopolitical threats to supply chains, fragilities in commercial real estate, and the Fed's forecasts being wrong, but put particular emphasis on the premature easing of financial conditions. The Dallas Fed President said, "long-term yields have given back most of the tightening that we saw over the summer." She said the magnitude of the reactions to the soft data since October was "much greater than normal." Noting that the perceived reduction of term premium from the market "leaves more work to be done with the fed funds target." 

On inflation, she highlighted that it is in a much better place, but said the "challenge now is to finish the work" of bringing it to the 2% target. On growth, she said she expects a much slower Q4 2023 reading (vs Q3) and her contacts "consistently report that growth is settling down—not collapsing, not heading toward recession, but settling down." On the labour market, she said it continues to rebalance despite being still tight. Said wage growth "appears to be somewhat more consistent" with the 2% target. 

Logan, who formerly headed the NY Fed's market desk, also gave some updated views on the balance sheet runoff. She said, "given the rapid decline of the ON RRP, I think it’s appropriate to consider the parameters that will guide a decision to slow the runoff of our assets." Where in her view, "we should slow the pace of runoff as ON RRP balances approach a low level."

08 Jan 2024 - 13:08- Fixed IncomeImportant- Source: Dallas Fed