January 12, 2016 / 12:43 AM / 2 years ago

Fed's Kaplan warns against delays to further rate hikes

DALLAS (Reuters) - Robert Kaplan, the new chief of the Dallas Federal Reserve Bank, said on Monday he supports gradually increasing U.S. interest rates, adding that keeping monetary policy too easy for too long poses risks that could be painful to address.

“I agree with, and argued for, the decision made in December by the (Fed) to increase the federal funds rate,” Kaplan said in remarks prepared for delivery to the Dallas chapters of Financial Executives International, the Association for Corporate Growth and the National Association of Corporate Directors. “If we delay further normalization until we actually see evidence of excessive accommodation, there is a risk that we will have waited too long.”

The Fed last month raised benchmark interest rates by a quarter of a percentage point, ending a seven-year stretch in which rates were held at a near-zero level in response to the 2007-2009 financial crisis and recession.

Economists predict the Fed will next raise rates in March and are parsing comments from Fed policymakers like Kaplan for hints on whether that view is on target.

Kaplan did not address his preferred timing for future rate hikes in his prepared remarks.

Still, despite his warning on the risks of excessively easy policy, his comments on the whole were more measured than his hawkish predecessor, Richard Fisher.

He forecast 2 percent to 2.5 percent GDP growth this year and for inflation to rise to the Fed’s 2 percent target by the end of 2017, an outlook that puts him in the same ballpark as most of his Fed colleagues.

But rather than highlight upside risks to that forecast, which would suggest a bias toward faster rate hikes, Kaplan focused on potential headwinds.

Kaplan forecast oil prices, whose decline has helped boost car sales but has also put unwanted downward pressure on inflation, to remain low and volatile. He also flagged concerns about weak growth abroad.

“Our economists will be considering how a stronger dollar and more subdued rates of growth outside the U.S. might adversely affect GDP, unemployment and inflation in this country,” Kaplan said. “Slower Chinese growth has the potential to further impact commodity prices and create headwinds for GDP growth in the U.S. and other economies.”

Kaplan won’t vote on policy until 2017, but he will take part in the Fed’s eight policy meetings over the year, with the first one set for later this month.

Reporting by Ann Saphir with reporting by Terry Wade in New York; Editing by Meredith Mazzilli

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