Federal Reserve Bank of Dallas President Lorie Logan recently addressed the economy during a speech, emphasizing the need for gradual rate cuts to achieve a more neutral monetary policy.

In her remarks, she highlighted the importance of lowering the policy rate while acknowledging the current strength and stability of the economy.

Despite positive job data, Logan expressed concerns about uncertainties surrounding the labor market and inflation objectives.

She noted that while the September jobs report was strong, there is a risk of the labor market cooling more quickly than expected.

Logan reiterated her strategy of gradually lowering the policy rate to reach a more normal level, aligning with the Fed's overall monetary policy normalization.

Logan characterized recent volatility in money markets as normal and not a concern for the Fed, as it seeks an efficient balance sheet size.

Logan pointed out that inflation is declining, but the robust job market raises questions about the necessity of aggressive rate cuts.

Market participants are currently debating whether the Fed can deliver the anticipated half percentage point of rate cuts by the end of the year.

She sees no immediate need to halt the process of quantitative tightening (QT), which has reduced the Fed's balance sheet from $9 trillion to $7.1 trillion since 2022.

Logan discussed the Fed's balance sheet reduction and indicated that the sale of mortgage bonds is not a near-term concern.

Looking ahead, she anticipates negligible balances in the Fed's reverse repo facility and suggested lowering the reverse repo interest rate to encourage funds back into private markets.

She also emphasized the importance for banks to prepare for potential liquidity shortfalls and to be ready to utilize the Fed's Discount Window liquidity facility if necessary.