July 13, 2018 / 7:53 PM / a year ago

Fed's Kaplan speaks with Reuters on trade, rate hikes

NEW YORK (Reuters) - Over seltzer water and gnocchi at the Reuters New York bureau, Dallas Federal Reserve President Robert Kaplan gave reporters and editors his views on interest rates, trade, and more.

FILE PHOTO: Dallas Federal Reserve Bank President Robert Kaplan speaks with Reuters reporter Conway Gittens at Reuters' headquarters in New York City, U.S. July 13 2018. REUTERS/Ann Saphir

Here are some of the highlights:


“What’s going on in the short-run certainly isn’t positive, but for me it isn’t sufficient yet – yet – to materially change my outlook.”

“I still think probably the jury’s out as to where this is likely to go, but it’s something I’m watching very carefully. If it intensifies, materially broadens out to more goods, particularly autos, obviously that would cause me to rethink.”

“I’m worried about logistics, supply chains, and there’s no doubt individual industries I speak to, this could have a material effect and already is, on soybeans for example. It’s already having a material effect on some industries but as far as the overall outlook for the U.S economy, it’s not yet sufficient to cause me to materially change my outlook but it’s something I’m watching very carefully.”

“Trade is an opportunity for the United States…. My concern is in the longer run – it won’t be as much a short-term event – it’s having a chilling effect on investment, which will show up in the longer-run. We may lose competitiveness, depending on how this works out, because I think these logistics and supply chain arrangements have helped us improve global competitiveness. If we didn’t have that we might likely lose some of those jobs to Asia.”

“And then I worry about the potential for global instability…While exports is only approximately, let’s say, 12 percent of U.S. GDP, it’s a much higher percentage for other countries. If there’s instability there, that could feed back into financial market instability here, where it could tighten conditions. That hasn’t happened yet either, but depending on how far this went, that’s another thing to watch.”

“I’m watching the direct effects, but I’m more interested in the ripple effects, which may take a while to show up. And so that’s why this is of concern. But is it enough to, say, change my outlook for 2018 and 2019? No. But I’m more worried about the longer-term effects, depending on how far this goes.”


“It is also part of my job to call out relevant issues that affect economic growth in the United States, even if they are not in the purview of the Fed.”

“I’m not doing my job if we don’t call out this trade analysis...and I will keep doing that because I think it’s a critical part of the job.”

“Economy-wide, while it’s having very significant effects on individual industries, as an economy as a whole I am not to the point that what’s going on would change our overall GDP forecast. But we’re watching that very carefully and if it intensifies, we’ll alter that statement.”

“I still think it’s too soon to say how this will unfold. I still have as a possibility if not a probability that we look back two years from now, we’ll look back on this period as rhetoric and some actions but this ultimately won’t intensify. But I don’t know.”


“My base case is still… three for this year, not four. I could be convinced, by after the fall, that we should have a fourth but I haven’t made that judgement yet.”

“We expected 2018 to be a strong year for GDP growth, and we still believe that.”

“But I think some meaningful part of this is due to fiscal stimulus, not just the tax legislation but the budget agreement, and our analysis is, at the Dallas Fed, it will begin to fade somewhat in ‘19, more in ‘20, and we’ll gravitate down back to trend growth, or potential growth by ‘20 or ‘21 and so that is in the back of my mind.”


“At this point, I am not inclined to knowingly take actions that would invert the yield curve.”

“Even with that though… I do believe we should be moving toward a neutral monetary policy stance, but I think would should be doing it gradually and patiently.”

“For me neutral is probably something in the neighborhood of 2.5 to 2.75 percent, and so you could see where we’ll be at neutral sometime in 2019. And I for one am not yet convinced, based on my medium-term outlook – I’m going to, we’re going to need to, have a debate...I’ll be trying to think through whether we need to go beyond neutral, i.e. to a restrictive stance. We may well do that but it’s going to be based on a number of factors, as we move through ‘18 and ‘19.”

“I want to prolong this expansion and I want to try to increase the odds that we have more sustainable growth and more sustainable price stability. And I think if we get behind the curve and let the economy run too hot, I think that’s going to be harder to do.”

“We have a few stops we have to get to before we have to make that judgment.”

“The first stop along the road is to get to neutral, and so I am focused on getting to that stop. By the time we get to that, I’m going to refresh: do I still, what do I think the out year forecast is, what are the trends in employment, what are the trends in inflation. And I’m just not prepared to make that judgment yet, as to what we should do once we get to neutral.”

“The first order of business is to gradually and patiently get to neutral.”

Reporting by Ann Saphir; Editing by Chizu Nomiyama

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