Fed's Kaplan Maintains Need to Raise Rates
May 24 2017 - 9:54PM
Dow Jones News
By Paul Vieira
TORONTO -- Federal Reserve Bank of Dallas President Robert
Kaplan said Wednesday he believes there should be two more
additional rate increases in 2017, and even then monetary policy
would still be accommodative.
Mr. Kaplan said during a question-and-answer session at a
Toronto dinner hosted by Canada's C.D. Howe Instititue think tank
that the U.S. is "pretty darn close" to full employment and there
is no much slack left in the economy.
Yet, he cautioned inflationary pressure remains slow and uneven,
and that should give U.S. policy makers reason to proceed slowly
when it comes to removing monetary-policy stimulus.
"I think we should be removing accommodation but we need to do
it patiently," said Mr. Kaplan, a voting member of the
interest-rate-setting Federal Open Market Committee. "We should be
gradual and assess conditions as they unfold because of these
secular headwinds" the U.S. faces, chief among them aging
demographics.
His remarks in Toronto in part reinforce the main message
emerging from the minutes of the meeting held earlier this month of
senior Federal Reserve officials.
Those minutes, released earlier Wednesday, indicated another
rate increase "soon" would be appropriate so long as economic data
comes in largely in line with expectations.
Mr. Kaplan statements also echo is his longtime support for slow
and steady rate rises, points he reinforced in an essay published
on Monday.
Speaking briefly to reporters after the event, he declined to
comment about whether an increase in June was required, arguing he
prefers to focus on the path of rates. "I plan to be vigilant in
assessing incoming information if the economy unfolds more slowly,
it could be less than [two more] rate increases or if it's strongly
it could be more than that."
Economists and traders began to question the Fed's expected path
of rate increases this year due to unexpected softness in recent
inflation data and other indicators, and growing uncertainty about
the Trump administration's ability to deliver aggressive tax reform
and expansionary fiscal policy.
Fed officials left their benchmark short-term interest rates
unchanged within a range between 0.75% and 1% at the meeting May
2-3, following an increase at their March gathering.
Mr. Kaplan also discussed the need to unwind the Fed's
$4-trillion-plus balance sheet.
The minutes from the Fed's May meeting indicated "nearly all"
participants backed an approach to tapering reinvestments of
Treasury and mortgage securities by setting limits on the dollar
amounts of holdings that could run off every month. The Fed could
then increase those limits every three months over time to allow
more securities to run off, under the approach envisaged.
He said the Fed needed to be mindful of daily trading volumes
and be "sensitive" to the size of the securities runoff. "I am
hopeful we can do it in a way that minimizes the impact on both
the" Treasury and mortgage securities markets.
Meanwhile, Mr. Kaplan said research from Federal Reserve Bank of
Dallas indicates close trading ties with both Mexico and Canada are
"essential" for improving U.S. competitiveness. "I don't want to
see anything that jeopardizes those relationships, and will cost
U.S. jobs," he told the Toronto audience. "I am hopeful these
agreements will be negotiated in a constructive way."
The Trump administration notified Congress earlier this month of
its intention to renegotiate the 23-year-old trade pact, and formal
talks are expected to begin by mid or late August.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
May 24, 2017 21:39 ET (01:39 GMT)
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