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--Still Diagnosing Why Infl Has Lagged; Structural Forces Play Big Part
--May Be Wise to Take Another Tightening Step to Manage Risks
By Jean Yung
BOSTON (MNI) - Dallas Federal Reserve Bank President Robert Kaplan said
Friday he intends to keep an open mind ahead of upcoming Fed meetings on the
timing of the next rate hike as conflicting forces in the economy continue to
hold down inflation but that taking the next tightening step may be wise from a
On the one hand, cyclical inflationary pressures are building as the labor
market tightens. But those pressures are offset by structural shifts in
technology-enabled disruption and globalization, Kaplan said.
"I'm going to keep an open mind, but I'm watching these conflicting forces
and I'm also watching business trends generally," Kaplan, who has a vote on
rates this year, told reporters after giving a talk at a CFA Institute
conference in Boston.
"It doesn't mean cyclical pressures aren't building. I think they are," he
said. But, "I think some patience here in watching this unfold makes sense. I
think we have some time, an ability to be patient. We have some time between now
and upcoming meetings so I plan to take it."
Kaplan said he's still "at diagnosis" stage over why inflation has been
lagging and declined to comment on Friday's CPI report that showed core
inflation rising just 1.7% over the year. He said he believes tech-enabled
disruption plays a big part and will likely continue to affect the economy for a
That said, as cyclical pressure on inflation builds, "From a risk
management point of view, it might be wise to take another step in removing
accommodation," with the understanding that the fed funds rate remains over 100
basis points below his estimate of the neutral rate, which is close to 2.5%,
He said he's keeping a close eye on excessive debt build-up as a result of
easy financial conditions.
"Even if we take the next step we'll be accommodative. I'll come to a final
conclusion on it certainly before upcoming meetings," he said.
Kaplan separately commented on the Trump administration's ongoing search
for the next Fed chair, saying the best candidate should be "a formidable
analyst of the economy in their own right" and "have to be good at mobilizing
the group to forge a consensus."
That process by which different views are debated "serves the Fed and the
country well," Kaplan said.
Proposed legislation in Congress that would hold the Fed to a formula for
setting policy would not serve those purposes, Kaplan said. He and his team take
into account rule recommendations and it's a healthy process to look at why
policy might deviate.
But "I think that we'd be best served by being not overly prescriptive," he
said. "I fear that rules would be unduly rigid and create some unforeseen
--MNI Washington Bureau; +1 202-371-2121; email: firstname.lastname@example.org