02.04.2026 16:25
Lorie Logan, the president of the Dallas Federal Reserve Bank, cautioned that the central bank must keep its focus on its core mandate rather than becoming sidetracked by the size of its balance sheet. In a speech delivered at her bank, she emphasized that an expanding balance sheet is not inherently problematic if it serves the public’s needs.
Logan argued that the Fed’s balance‑sheet policy should be guided by what best supports the economy. She noted that meeting the demand for bank reserves is inexpensive for the central bank, and that shrinking the balance sheet would be more effectively achieved by reducing reserve demand rather than reverting to a scarce‑reserve regime. A smaller balance sheet could result from either lower reserve demand or a shift to a scarce‑reserve system, and regulatory changes might help lower that demand.
She pointed out that the current ample‑reserve framework remains efficient and effective, yet there are numerous complex options for trimming the Fed’s balance sheet. Forcing banks to economize on reserves could heighten financial‑system risk, whereas expanding access to Fed liquidity tools might also help curb reserve demand. Some of these measures, however, would need to originate outside the Fed’s own policy toolkit.
During the most recent FOMC meeting, Logan expressed support for the decision to keep policy unchanged. She highlighted that the labor market has stabilized since the second half of 2025, yet payroll growth has been disappointingly weak, creating a sense of unease.
Immigration dynamics have shifted the job‑market breakeven point to nearly zero, and Logan remained skeptical that inflation had eased sufficiently even before the onset of the conflict. Despite this, business investment remains robust and consumers continue to demonstrate resilience.
The war in Iran has amplified uncertainty, raising risks on both sides of the Fed’s dual mandate. This added volatility has made the latest round of economic forecasts particularly challenging to construct.
If the conflict were to resolve swiftly, the economic fallout could be relatively modest. The Fed’s policy framework is designed to react to incoming data, and officials are ready to make adjustments as circumstances evolve.
The United States possesses several buffers that could mitigate the war’s impact. The central question moving forward is whether the disruptions caused by the conflict will ultimately alter the trajectory of the economy.
