September 22, 2017 / 6:43 PM / a year ago

Dallas Fed's Kaplan says open to December rate hike but still eyeing inflation

OKLAHOMA CITY (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Friday he remains “open-minded” on a December rate increase but remains concerned current weak inflation may be the result of hard-to-counter structural trends.

FILE PHOTO: Dallas Federal Reserve Bank President Robert Kaplan gestures during a news conference after of the True Economic Talks event in Mexico City, Mexico, July 14, 2017. REUTERS/Edgard Garrido - RC18A255B4F0

“I am open-minded on one more rate increase,” for this year Kaplan said, but “the structural change in our economy is more powerful and the rate of structural change is greater and it is creating some headwinds for inflation and affects wages also.”

“We are all trying to get a grip on it,” Kaplan said of discussion within the Fed over whether a tight jobs market will eventually push wages and prices higher, as it has in the past, or whether some different price dynamic is at work.

The Fed indicated after its latest policy meeting this week it was still ready to raise rates in December even as Fed chair Janet Yellen deemed the behavior of inflation a “mystery” to policymakers. Unemployment is low, but the gauge of price increases preferred by the Fed most recently fell to 1.4 percent annualized, far short of the central bank’s 2 percent target.

Globalization and technology are among the things that may hold down prices even as unemployment falls, he said.

In a question and answer session at a conference here on energy markets, Kaplan also said, as have other Fed officials, that efforts that restrict immigration or trade may be damaging to U.S. economic growth.

Population aging is at the point where the domestic labor force will eventually begin to shrink, he said. More immigration is needed to counter that, Kaplan said, arguing that his Fed district may see the start of a “healthy” conversation about the issue as worker shortages impede reconstruction from Hurricane Harvey. His Dallas-based district includes all of Texas.

The possible shortage of workers in an industry that Kaplan said has often involved undocumented labor was “creating a constructive and healthy discussion, a realization that we need to grow our workforce. We need to look in a comprehensive way, come up with a sensible immigration policy,” that will boost economic growth.

Reporting by Howard Schneider; Editing by Chizu Nomiyama

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