Kaplan Calls for Patience as Fed Assesses Outlook, Policy Stance

  • Dallas Fed president says financial conditions have tightened
  • Developments outside U.S. must be analyzed carefully

Federal Reserve Bank of Dallas President Robert Kaplan said it’s premature to judge what policy makers will decide about interest rates at their meeting in March, as they gauge the implications of a dimmer global outlook for U.S. jobs and inflation.

“I don’t think it’s a good thing, pro or con, to be assessing what we will or won’t do,” Kaplan told journalists Thursday after speaking at a forum in Dallas. “To be patient, not have a predetermined plan, to be agnostic about actions we take, watchfully waiting” is “the appropriate stance at the moment,” he said.

Kaplan’s comments echo remarks this week by Fed Governor Lael Brainard and New York Fed chief William Dudley, who urged caution in assessing the U.S. economy amid tighter financial conditions. Since officials in December indicated four quarter-point rate increases might be warranted this year, investors have cut the probability they see of the Fed acting, with pricing in fed-funds futures signaling no hike is expected until 2017.

“We’re in a period right now where non-U.S. conditions have weakened, global financial conditions have tightened, and I am right now working with my team to assess the impact of those on underlying conditions in the United States,” Kaplan said. “Market pricing of rate hikes are reacting to the same things I just talked about,” and while “sentiment can change very quickly, underlying conditions don’t change as quickly,” he said.


U.S. growth slowed in the fourth quarter, with manufacturing hurt by a stronger dollar and a weaker growth abroad. Kaplan, who doesn’t vote on rate decisions this year, said Fed policy will be data-dependent.

“Recent developments reinforce the case for watchful waiting,” Brainard said in comments published by the Wall Street Journal, expressing concern that stresses in developing countries such as China and slow growth in advanced economies could spill over to the U.S.

Dudley told Market News International that if “considerably tighter” financial conditions than in December remained in place by March, “we would have to take that into consideration in terms of that monetary-policy decision.”

International Monetary Fund Managing Director Christine Lagarde, speaking at an event in Maryland Thursday, said that the U.S. had a “special responsibility as it normalizes its monetary policy” and it’s important that Fed “continue to do this in a prudent and well-communicated manner.”

Policy makers are aware that excess monetary policy accommodation creates distortions in investment and asset-allocation decisions, Kaplan said. “Having said that, while we may want to normalize, you can’t force it.”

Chair Janet Yellen will have an opportunity to provide her views when she appears before Congress to discuss the economy and monetary policy next week.

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