Federal Reserve Bank of Dallas President Lorie Logan said Thursday that the ongoing war in the Middle East has added a substantial layer of uncertainty to the U.S. economic outlook and that the central bank stands ready to alter policy as new data arrive.
Speaking at an event held at her bank, Logan framed her current approach as scenario-based. She said,
"I really like thinking about things in scenarios right now," Logan said. "I think policy is positioned to adjust to the data as it's coming in, and we're prepared to make adjustments to the policy path as appropriate."
On the broader economy, she said she supported the Federal Open Market Committee's recent decision to hold interest rates steady. But she signaled lingering concerns about the labor market, noting that payroll gains have been weak enough to make her feel "uncomfortable," even as the job market showed signs of stabilization "in the second half of 2025 into this year." She added that immigration has altered the job-market breakeven to "close to zero."
Turning to inflation, Logan said she was not convinced it was easing sufficiently even before the outbreak of the war, underlining the importance of restoring inflation to the Fed's 2% target. She also observed that business investment remains robust and that consumer resilience has persisted.
Logan described the Iran war as a factor that has increased uncertainty and raised risks on both sides of the Fed's dual mandate. She said the most recent round of Fed forecasts was difficult to compile under these conditions.
Discussing possible economic outcomes tied to the conflict, she said a quick resolution could limit the impact to a moderate level. The United States, she said, has some buffers that could blunt effects stemming from the war.
Logan identified a key open question for markets and policy: whether disruptions from the war will prompt increased investment in U.S. energy production. She noted that energy producers appear to require sustained higher prices to stimulate additional output and said she was not hearing reports of a dramatic increase in U.S. energy production so far.
Her remarks underscored a policy stance that remains data-dependent amid elevated geopolitical risk, continuing inflation concerns, and uneven labor-market signals.
Implications for markets and sectors
- Energy - Logan flagged the possibility that higher and sustained energy prices would be necessary to drive greater U.S. production, and said she has not seen evidence of a large production response so far.
- Labor - Weak payroll gains and shifts in immigration dynamics have altered labor-market breakeven conditions, influencing the Fed's assessment of the employment outlook.
- Inflation-sensitive sectors - With Logan unconvinced that inflation was easing sufficiently prior to the war, sectors sensitive to consumer prices remain relevant to the policy outlook.