Dallas Federal Reserve Bank President Lorie Logan said the Fed must continue raising interest rates to fully curb inflation, and suggested that rising U.S. Treasury yields may also help cool the economy.

In prepared remarks Thursday for an event at the Dallas Fed, Logan said, "I currently estimate that the target rate range needs to be raised by another 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals." Before joining the Dallas Fed, Logan spent more than 20 years in the markets department of the New York Fed. She also noted that U.S. Treasury yields have climbed sharply over the past few weeks. She said market participants told her the rally initially stemmed from expectations of strong economic growth and a potentially higher neutral rate for the Fed, but models now show the term premium is also rising. The so-called term premium is the extra compensation investors demand for holding longer-dated bonds rather than shorter-dated ones. "A rise in the term premium can cool the economy, thereby reducing the need for tighter monetary policy," Logan said. She holds a vote on the Federal Open Market Committee (FOMC) this year.

With progress on slowing inflation stalling, policymakers raised rates by 0.25 percentage points at their September meeting, the first hike in three years. The median estimate policymakers released at that meeting indicated at least one more rate increase this year. Bonds have been sold off this year, with the 30-year Treasury yield up 64 basis points since June. Some of Logan's colleagues said this week that the Fed can afford to be patient before its next rate hike. Vice Chair Philip Jefferson and New York Fed President John Williams said the Fed may wait to see how data evolve over the coming weeks before deciding the direction of policy. The two, along with Chair Kevin Warsh, are sometimes called the Fed's "troika" of leaders. Fed Vice Chair for Supervision Michelle Bowman also said Thursday that more time is needed to better understand the underlying trends in the economy.

Those comments reduced market expectations for a Fed rate hike at the Oct. 27-28 meeting. Based on federal funds futures pricing, investors now see only a 28% chance of a rate increase next month, down from 70% earlier this week. After the October meeting, the Fed's next policy meeting is in December. Logan detailed in a 2023 speech the various Treasury market models she references. She said she will continue to watch yield movements and other aspects of the economy to assess what level of rates is needed to impose a degree of restraint on the economy. Logan said that at a minimum, raising the target rate range a few more times could reverse the rate cuts the FOMC made last year on risk-management grounds. She was referring to the Fed's total of 75 basis points of rate cuts last year. She said the ultimate goal, however, should be to bring policy to a moderately restrictive level that puts the economy on a path toward sustainable full employment and price stability.