By Michael S. Derby 

Federal Reserve Bank of Dallas President Robert Kaplan said Monday he will likely support more interest rate increases as long as the economy continues to see job market gains and a continued move back toward a 2% inflation rise.

"We would be wise to move gradually and patiently" with increases in short-term interest rates, Mr. Kaplan said, while offering no specifics on the timing of future monetary policy actions.

The central banker said the economy continues to make progress in terms of the Fed's official mandates of maximum growth and sustainable inflation. He added it is prudent for the central bank to keep policy supportive of growth, while at the same time moving it toward a level that is less stimulative of economic activity.

"You remain accommodative until you see evidence that you are starting to meet your dual mandate objectives. And when you get enough confidence, which I have, that we are meeting our dual mandate, you start removing accommodation," Mr. Kaplan said.

He described current Fed actions as akin to driving a car, saying "it is like taking your foot off the accelerator. We haven't put our foot on the brake." Mr. Kaplan added "if we continue to make progress, I will continue to be supportive of taking additional steps to remove further amounts of accommodation."

Mr. Kaplan, a voting member of the interest-rate setting Federal Open Market Committee, made his comments at an appearance at Texas A&M University, in College Station, Tex. The official spoke ahead of what is scheduled to be a very active week of central bank speech making, as officials like Chairwoman Janet Yellen and many of the regional bank presidents are all set to weigh in.

Earlier this month, the Fed broadly held expectations and raised its short-term interest rate target for the first time this year and the third time since the financial crisis, pushing its overnight target rate range to 0.75% to 1%. The bank's official forecasts hold for around two more rate rises this year, and most central bankers have signaled they agree with that outlook.

In comments earlier on Monday, fellow FOMC voter Charles Evans, who leads the Chicago Fed, told an audience in Madrid that reaffirmed the likelihood of three increases. He said "at the moment, I don't see the data, I don't have the confidence" for four rate increases in 2017, he said at an event held in Madrid by the Global Interdependence Center. "If I thought that I was inclined to four rate hikes for 2017, I would presumably be seeing a much stronger lift in inflation."

Mr. Kaplan said "for me it was important to move in March" given how the economy had performed. He also said that moving slowly and steadily higher with rates has benefits for the performance of the economy.

"History has shown that when the Fed has removed accommodation patiently, the economy can manage it," he said. "If on the other hand, we wait too long to where we are afraid inflation is running away from us, we might have to raise rates more quickly, and that historically has tended to make it more likely you have a recession."

Mr. Kaplan said in his remarks that the U.S. economy is likely to grow around 2.25% this year and that will be enough to help drive up unemployment levels. He said there is also reason to be confident that after years of being too weak inflation is moving back to desired levels.

Mr. Kaplan's remarks were broad-based and the official warned that the U.S. government budget outlook is bleak with some pain now obscured by low borrowing costs tied to low Fed-determined rates. But that environment won't persist forever and steps need to be taken to deal with debt and massive government spending obligations in an economy that is currently facing challenges to growing more swiftly.

Write to Michael S. Derby at michael.derby@wsj.com

 

(END) Dow Jones Newswires

March 27, 2017 20:43 ET (00:43 GMT)

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