The Federal Reserve should raise rates "sooner rather than later" to insure that future removal of accommodation can be done gradually, with patience, according to Federal Reserve Bank of Dallas President Rob Kaplan.
"I believe that we should be taking steps to remove additional amounts of monetary accommodation," said in an article posted on the Bank's website Thursday evening. I" believe that future removals of accommodation can likely be done in a gradual and patient manner. However, it is my view that moving sooner rather than later will make it more likely that future removals of accommodation can be done gradually—that is, reduce the likelihood that the Fed will get 'behind the curve' and feel the need to remove accommodation more rapidly."
The Fed is "making good progress" toward meeting its dual mandate of full employment and price stability, although he believes "there is still some amount of slack in the U.S. workforce." While nearing full employment, he said, there may be "some scope for further job growth without overheating the economy or unduly stressing the capacity of the U.S. workforce."
Kaplan suggested, "excess capacity outside the U.S. may be dampening inflation pressures in the U.S."
Inflation should approach the Fed's 2% target in the medium term "as the impact of lower energy prices begins to dissipate, and as the labor market continues to tighten."
Besides removing accommodation, Kaplan said, Fed officials should turn their "attention to a discussion of how we might begin the process of reducing the size of the Federal Reserve balance sheet."
