Rate Increases Should Be Done Gradually And Patiently, Fed's Kaplan Says
March 27 2017 - 08:58PM
Dow Jones News
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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