Logan: Iran War Uncertainty Tests Fed Policy Direction
Federal Reserve Bank of Dallas President Lorie Logan assessed that the US economic outlook is now clouded by "considerable" uncertainty due to the war in the Middle East, while emphasizing that the central bank is ready to adjust its policy direction based on the latest economic data. Logan said she is now more comfortable assessing conditions through various scenarios, with monetary policy positioned to respond to developments gradually.
Logan also expressed support for the Federal Open Market Committee's (FOMC) decision to hold interest rates at its last meeting. She noted that weakening payroll growth made her "uncomfortable," although she assessed that the labor market is likely to stabilize from the second half of 2025 through early this year. She noted that immigration flows have contributed to shifting the labor market equilibrium, so the need for job creation to maintain stability could be closer to zero.
On the price side, Logan emphasized that she was not convinced that inflation was declining rapidly enough even before the war began, and that restoring inflation to 2% remains a priority. At the same time, she noted that business investment remains strong and consumers are relatively resilient.
Logan said the Iran war increases uncertainty and adds risks on both sides of the Fed's mandate, making the development of updated projections more challenging. If the conflict subsides quickly, the economic impact is expected to be more moderate, as the US still has some cushion against shocks.
One key question is whether the disruption from the war will trigger greater investment in US energy production. Logan believes energy producers likely need higher prices over a longer period to drive production increases, and so far he has not heard any signs of a significant surge in US energy production. The variables the market will monitor next include the direction of inflation, payroll strength, conflict developments, energy prices, and signals about investment in the domestic energy sector.
Source: Newsmaker.id
