Kaplan says Fed should move to neutral

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The Federal Open Market Committee should raise rates two, maybe three times to reach a neutral policy rate, Federal Reserve Bank of Dallas President Robert Kaplan said Friday.

“I believe over the next nine months we have to raise rates two, but more likely, three times to get to a neutral level,” Kaplan said at Shadow Open Market Committee meeting, sponsored by the Manhattan Institute. “I’m not prepared to say we should move beyond a neutral stance at this point.”

After those hikes, he said, he would be prepared to determine if rates have to move to restrictive levels.

“I still believe we are accommodative, modestly accommodative,” Kaplan said, “I believe we should be moving to our best judgement of a neutral stance.” Using an analogy of driving a car, he suggested, “we should be easing our foot off the accelerator.”

The fed funds rate remains “historically low.”

When asked what level of inflation over 2% is acceptable, Kaplan said, “It depends on the nature of the rise.” If it’s sustainable, it would have to be taken into account, while if it’s transitionary, “give it time” to play out. The trick, he noted, is figuring out if it’s an enduring trend or transitionary.

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Monetary policy Robert Kaplan Federal Reserve Federal Reserve Bank of Dallas FOMC