Monetary policy accommodation should be removed "in a gradual and patient manner," Federal Reserve Bank of Dallas President and CEO Robert S. Kaplan said in Beijing Tuesday.
"I have been suggesting that removal of accommodation should be done in a gradual and patient manner, based on a realistic assessment of progress toward achieving the Federal Reserve's dual-mandate objectives regarding full employment and price stability," Kaplan said, according to prepared text of his speech, released by the Fed. "I am also very cognizant that, from a risk-management point of view, our monetary policies have an asymmetrical impact at or near the zero lower bound."
While debate continues regarding what the neutral rate is, all parties agree that it has declined from its prior level and, as a result, "using monetary policy to help manage the economy has become more challenging," he added.
"Monetary policy has a key role to play in economic policy," Kaplan noted. "However, at or near the zero lower bound, it may be less effective than other tools of economic policy. Monetary policy is not designed, by itself, to address the key structural issues we face today stemming from demographic changes, lower rates of productivity growth and high levels of debt to GDP as well as dislocations created by globalization and increasing rates of economic disruption."
It will take "fiscal policy or structural reforms" to push GDP higher.
