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Dallas Fed president: Inflation, labor trends may call for more restrictive monetary policy

Inflationary trends and labor data imply more restrictive monetary policy from the U.S. Federal Reserve may be needed. File Photo by Alexis C. Glenn/UPI
1 of 3 | Inflationary trends and labor data imply more restrictive monetary policy from the U.S. Federal Reserve may be needed. File Photo by Alexis C. Glenn/UPI | License Photo

July 6 (UPI) -- Lorie Logan, a voting member at the Federal Reserve and the president of the central bank in Dallas, said Thursday that inflationary data and labor trends suggest further rate hikes may be necessary to cool the economy.

"The continuing outlook for above-target inflation and a stronger-than-expected labor market calls for more-restrictive monetary policy," she said.

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Logan said that, while all the details about the economic performance during the second quarter aren't in yet, the economy is running "pretty hot."

"Core and trimmed mean inflation measures continued to run around 4%, twice our target," she said. "And while labor market indicators have eased, the overall pace of rebalancing remains slower than previously expected."

Private payroll processor ADP on Thursday reported 497,000 non-farm payrolls in June, with the service sector accounting for the bulk of the additions. The figure was well above Wall Street estimates, raising concerns the economy is avoiding any major headwinds from lingering inflationary pressures.

"Consumer-facing service industries had a strong June, aligning to push job creation higher than expected," said Nela Richardson, the chief economist at ADP.

Logan added there is clearly no indication of an abrupt slowdown in the labor market.

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The U.S. Federal Reserve opted to keep its lending rates stable last month as signs emerged that inflation was cooling off. Headline inflation increased 0.1% to 4% annually to May. But so-called core inflation, which strips out volatile food and energy prices, was up 5.3% over the 12-month period, an increase of 0.4% from the prior month.

Federal Reserve Chairman Jerome Powell testified before U.S. lawmakers last month that two more rate hikes may be implemented this year in an effort to bring inflation closer to the target rate.

Fed policymakers such as Logan and Powell run the risk of pushing the economy into a recession, which would come as a result of successive declines in gross domestic product and widespread layoffs.

Minutes published Wednesday from the June policy meeting pointed to concerns about a likely recession in the near term. Most, however, felt the downturn would be "neither deep nor prolonged."

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