Dallas Federal Reserve President Lorie Logan has warned that the central bank may need to increase interest rates this year to rein in inflation before it gets out of control.
One of the Federal Reserve’s most hawkish members and a voting member of the Federal Open Market Committee (FOMC), Logan made her comments during a moderated event at the University of Texas at El Paso on Wednesday.
“I’m increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability,” said Logan.
Her remarks come just two weeks before new Fed Chair Kevin Warsh helms his first FOMC meeting, at which he is expected to eliminate the central bank’s forward guidance—a key communication tool used to signal the likely trajectory of monetary policy and interest rate to investors, businesses, and the public.
According to reporting by the Financial Times, the potential dismantling of forward guidance may entail eliminating a rate forecast from the quarterly “dot plot”—the chart mapping out each FOMC member’s projection of where the federal funds rate will be in the coming years.
For average Americans, the dot plot, introduced in 2012, heavily influences the trajectory of their borrowing costs.
When FOMC members indicate lower future rates, mortgage lenders and credit card companies price those cuts in. Without this transparency, the financial markets could face greater volatility.
Another possible change to forward guidance, which Warsh hinted at during his confirmation hearing, could be eliminating language about future rate cuts or hikes from Fed policy statements.
Notably, at the last FOMC meeting in April, Logan was one of three voting members who objected to the Fed’s official statement suggesting an “easing bias” in future interest rate decisions. The Dallas Fed chief and her fellow dissenters argued that the central bank should signal that a rate increase was just as likely as a cut, depending on the state of the economy.
Meanwhile, inflation is a renewed concern for the central bank, undermining the path to the lower interest rates that President Donald Trump has called for.
Overall prices increased 3.8% in the 12 months through April, the highest in nearly three years, driven by oil shocks and the ongoing global supply chain strains triggered by the Iran war.
The threat of entrenched inflation
Under the Fed’s dual mandate of price stability and maximum employment, the central bank uses higher interest rates to keep inflation as close to its 2% target rate as possible and lower rates to boost job creation.
Speaking in El Paso, Logan said that not only is inflation heating up, economic activity is strong and corporate earnings fueled by the AI boom are “going gangbusters,” signaling to her that monetary policy is not restraining the economy, reported Reuters.
“I’m just not sure that policy is very restrictive. It’s to me, it looks neutral, or perhaps even a bit loose,” Logan said, suggesting that the Fed may need to increase borrowing costs to bring inflation down to 2%, lest the public gets used to elevated inflation.
“Above-target inflation can become entrenched if it persists too long,” warned Logan.
The Dallas Fed president is not the only FOMC member voicing concerns about the risk of inflation running too hot for too long.
Speaking at Frankfurt School of Finance and Management in Germany last month, Fed Governor Christopher Waller, who supported a rate cut a year ago, said he cannot rule out rate hikes in the future if inflation does not ease soon.
“I would support removing the ‘easing bias’ language in our policy statement to make it clear that a rate cut is no more likely in the future than a rate increase,” said Waller, admitting, however, that raising the policy rate in the near term “could cause damage.”
What does it mean for homebuyers?
For aspiring homebuyers, Realtor.com® senior economist Jake Krimmel points out that mortgage rates closely track the 10-year Treasury yield rather than the Fed’s policy rate, meaning long-term inflation expectations are already partially baked into current rates.
“That means a 25 basis point Fed hike in late 2026 or early 2027 probably won’t, on its own, dramatically shift mortgage rates,” explains Krimmel. “What will move mortgage rates is if inflation itself gets dramatically worse in the next few months and/or if the bond market thinks the Fed is reacting too slowly.”
If the markets think the central bank is acting appropriately by increasing the federal funds rate, Krimmel suggests that could actually stabilize inflation expectations and mortgage rates.
“Either way, homebuyers should not wait for a rate cut or lower inflation this summer; both are looking very unlikely,” notes the economist. “Mortgage rate relief will come from the bond markets and a steadying inflation picture before it comes from the Fed.”
Heading into the typically busy summer buying season, Krimmel says the biggest “wild card” for the housing market is the ongoing conflict in the Middle East.
“All of the homebuyer headwinds—higher mortgage rates curbing affordability, inflation eating into paychecks and savings, economic uncertainty clouding decision making—are downstream of the war,” he says. “So too is the Fed’s rate path.”
The spring housing market stood out for its resilience in the face of geopolitical challenges, with undaunted buyers coming to the closing table despite mortgage rates moving into the mid-6% range.
Heading into the summer, Krimmel says it remains to be seen whether shoppers will continue showing up if interest rates advance, especially if accompanied by higher inflation and greater uncertainty—or whether it will be another “cruel summer.”
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