Fed's Kaplan Says FOMC Can Take Its Time to Weigh Policy Moveby
Dallas Fed chief encouraged by recent inflation readings
Lacker earlier says no reason yet for U.S. outlook downgrade
Federal Reserve Bank of Dallas President Robert Kaplan said recent inflation readings were encouraging, but urged patience in judging the ramifications of turbulent financial markets for the timing of the next interest-rate increase.
“One of the things that you have as an asset is time,” he told reporters Wednesday after delivering remarks at an event in Dallas. “For me, I would like to take more time.”
His comments will reinforce the view among investors that the U.S. central bank won’t raise interest rates at the next meeting of the Federal Open Market Committee on March 15-16, as policy makers wait for a clearer picture of how the U.S. economy is weathering cooler growth abroad.
Based on pricing in federal funds futures markets, investor see about an 8 percent probability of a hike next month and, with just three weeks to go until the meeting, officials are doing little to alter that judgment.
Fed Vice Chairman Stanley Fischer, speaking in Houston on Tuesday evening, said “it is still early to judge the ramifications of the increased market volatility of the first seven weeks of 2016.”
Officials will submit fresh quarterly forecasts for their March gathering, including their estimate for the appropriate path of the benchmark federal funds rate. In December they projected four rate increases this year. Kaplan, who doesn’t vote on the FOMC until 2017, signaled that his own view had since dimmed.
“It wouldn’t be surprising to see in my submission some slowing, some change in the path. You’ll see some change,” he said.
The Fed raised rates in December for the first time in nearly a decade. Investors initially took the well-telegraphed move in their stride, but then the markets turned. Global stocks have dropped about 7 percent this year, and oil is down about twice that much, partly on the fear that emerging markets, especially China, could slow more than expected, undermining U.S. exports and damping already-low inflation.
Kaplan said he’d been encouraged by U.S. economic data, including a pickup in January consumer prices, echoing Richmond Fed chief Jeffrey Lacker, who spoke earlier in Baltimore.
Lacker, an anti-inflation hawk who dissented last year in favor of hiking rates, said
that policy makers need to take market volatility seriously, but it’s too soon to say if it will affect the U.S. economic outlook.
“The role of the Fed is not to prevent every recession or to soothe every instance of financial instability, nor is it within its power to do so,” he said.