Federal Reserve's Logan: "Cautiously optimistic" about the effectiveness of current interest rates, but remains wary of the risk of high inflation.

Federal Reserve Chairwoman Logan said Tuesday she is "cautiously optimistic" that the Fed's current policy rate level can keep the labor market stable while pushing inflation back to the 2% target, a judgment that will be tested by economic data in the coming months. "If that happens, it would show that our current policy stance is appropriate and that we don't need to cut rates further to achieve our dual mandate," Logan said. However, she added that if inflation falls while the labor market cools significantly, "another rate cut might become appropriate. Right now, though, I'm more concerned that inflation remains stubbornly high." She said that after three rate cuts last year, downside risks to the labor market "seem to have eased significantly," but this has also introduced additional risks to inflation. She noted that with short-term borrowing costs already in what is widely considered a "neutral" policy range, current interest rates have limited restraining effect on the already strong economic rebound and inflation that has been consistently above the Fed's target for nearly five years. Logan expects inflation to make progress this year, with some initial signs of improvement already seen.