Lorie Logan Wants the Fed to Raise Rates 50 More Basis Points. The Market Just Priced Out an October Hike.

On October 1, Lorie Logan told Texas business leaders that the Fed's benchmark rate needs to climb another 50 basis points or more. One day later, traders moved the other way. The CME's FedWatch tool put the odds of an October hike at 17 percent, down from 36 percent a week before. On Kalshi, the same odds fell from near 70 percent to 18 percent.

The dissenter who got her hike, then asked for more

Logan was one of three regional Fed presidents outvoted 9 to 3 at the Fed's July 29 meeting, where she wanted to raise rates immediately. By September 16, the full committee came around. It voted 12 to 0 for a quarter-point increase to a range of 3.75 to 4 percent, the Fed's first increase since 2023. Two weeks later, speaking at the Dallas Fed's headquarters, Logan said that one hike had not been enough.

“I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals.”

Logan framed the additional increase as partly undoing 75 basis points of what she called risk-management cuts made last fall. She called the labor market well balanced. Inflation, she said, is unlikely to fall much below 2.5 percent without further rate increases, even as price pressure gradually eases.

A jobs report that pointed the other way

The next morning, the Labor Department's September payrolls report undercut her timing, if not her direction. Employers added 29,000 jobs, below estimates for a gain of more than 80,000, and the unemployment rate ticked up to 4.2 percent. July and August were revised down by a combined 60,000.

Odds for an October increase had already softened earlier in the week, after a cooler-than-expected reading on core PCE inflation, the Fed's preferred gauge. It rose 3 percent in August, against consensus estimates of 3.3 percent.

"This report strengthens the case for the Federal Reserve to remain patient," said Adam Schickling, a senior economist at Vanguard. "The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data." December odds moved the opposite direction from October's. FedWatch puts the chance of a hike that month above 75 percent, and Kalshi at 65 percent.

What the headline number was hiding

The Conference Board's own read on the same report took a less alarmed view of the miss. Senior economist Yelena Shulyatyeva published it the same day. On a three-month moving average, payrolls grew 51,000, a pace she said is still consistent with a low unemployment rate.

Wage growth decelerated rather than accelerated, which argues against the kind of renewed wage pressure that would force the Fed's hand. Factory and construction hiring held up; healthcare hiring slowed.

Her conclusion: the labor market is strong enough for the Fed to focus on inflation data instead. Consumer Price Index figures land October 14, producer prices October 15, and those numbers will matter more than this one payrolls report.

A unanimous vote that may not stay that way

The Fed's September decision was unanimous on paper, a reversal of the 9-to-3 split from July. Logan's October 1 remarks suggest that unanimity covered less agreement than the vote count implied. There is no public record of any other sitting Fed official calling for a comparable increase since the September meeting.

Minutes from that meeting, due out roughly three weeks after the decision, had not been released as of this writing. Whether Logan is alone or ahead of the room will not be clear until the minutes and the next jobs report arrive. Both land before the Fed's October 27-28 meeting.

What is clear already is the gap in timing. Logan wants more tightening now. The market, reading the same data the Fed will read, has priced almost none of it into October and most of it into December. The committee that voted 12 to 0 in September does not have to close that gap until its next meeting. The data arriving between now and then, not the speeches in between, will decide who was closer to right.