Dallas Federal Reserve President Lorie Logan indicated on Thursday that U.S. oil producers are unlikely to significantly boost output in the near term, despite elevated gasoline prices. According to Logan, producers need to see sustained prices near $70 a barrel before committing to increased drilling, a level well below the current price of around $110 a barrel. She emphasised that companies require confidence in the longevity of these higher prices to justify the necessary investments.
Logan’s remarks suggest that rising energy prices stemming from geopolitical tensions will continue to pose a challenge to inflation and economic stability. She noted that while the U.S. has certain advantages compared to nations closer to the conflict, inflation remains a primary concern. Logan stated that even before the Middle East conflict, she was not convinced that inflation was firmly on track to reach the Fed’s 2% target. Capital Economics estimates that the ‘indirect’ impact of higher energy prices on inflation could range from 0.7% in the U.S. to 1.5% in the Euro zone.
Logan echoed the views of many of her colleagues, stating that the current uncertainty warrants a cautious approach, advocating for a ‘watch and wait’ strategy while monitoring incoming economic data. The Federal Reserve is the central bank of the United States. It conducts monetary policy to manage inflation and promote maximum employment.
She acknowledged the increased complexity of the Fed’s mandate due to the conflict, which is creating risks on both sides. Logan suggested that a swift resolution to the conflict would likely have a moderate economic impact, while a protracted war could have more adverse consequences, potentially creating tension between the Fed’s responsibilities to contain inflation and promote job growth.
