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Fed's Kaplan: falling unemployment may trigger rate hikes
November 16, 2017 / 7:38 PM / a month ago

Fed's Kaplan: falling unemployment may trigger rate hikes

HOUSTON (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan on Thursday repeated that he is “very open-minded and actively thinking about” a possible interest-rate hike at the U.S. central bank’s next policy meeting.

Dallas Federal Reserve Bank President Robert Kaplan gestures during a news conference after of the True Economic Talks event in Mexico City, Mexico, July 14, 2017. REUTERS/Edgard Garrido

“I‘m very open-minded... about considering taking a next step in removing accommodation at upcoming meetings,” Kaplan, a voting member of the Fed’s policy committee this year, told reporters after a talk at the Dallas Fed’s Houston branch.

Kaplan is one of the central bank’s most fervent believers that “structural” headwinds like globalization and technology will continue to put downward pressure on inflation, despite the lift to inflation that theoretically should be delivered by a tightening labor market.

Still, his comments on Thursday suggest a growing unease that the Fed could overheat the economy if it does not respond to falling unemployment with rate hikes.

Unemployment, now at 4.1 percent, is expected to fall further in a “deviation” from the Fed’s full employment goal, he said.

“If the deviation on the full employment (goal) gets big enough that would be, for me, enough of reason to still remove accommodation, take another step,” he said.

Inflation is expected to rise toward the Fed’s goal, he said, and though structural pressures keeping it down are intensifying, “cyclical forces are building.”

“For me, prudent risk management means some action to remove accommodation gradually and patiently,” he said, even if that means raising rates when the Fed has met only one of its two goals of full employment and 2-percent inflation. “It’s not that you have see you are meeting both, then you move.”

NEW FED CHAIR

Kaplan, like other Fed policymakers, said he believes the recent nomination of Fed Governor Jerome Powell to succeed Janet Yellen as Fed chair means continuity for the institution, but does not foreclose necessary reviews of the Fed’s governance, policy frameworks, targets and banking supervision.

He called for a review of the so-called Volcker rule, but said he does not think that capital requirements or stress tests for big banks are hurting economic growth, and should be kept intact.

“I don’t want to see us water down those practices,” Kaplan said, though he said he does want “regulatory relief” for small banks. “I do not think that’s hurting economic growth in this country.”

Reporting by Ernest Scheyder; Writing by Ann Saphir; Editing by Chizu Nomiyama

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