Fed’s Kaplan Says June Jobs Report Shows Progress Continuesby
Global growth restrained by issues outside monetary policy
Impact from U.K. Brexit vote on economies still uncertain
Federal Reserve Bank of Dallas President Robert Kaplan said a strong June employment report, coming on the heels of a weak May reading, shows the central bank is continuing to make progress in reducing labor-market slack.
“The May report was not an anomaly,” Kaplan told reporters on Wednesday after a speech in Houston. But the June rebound “puts it in context, and we’ll have to debate the implications for that at the next meeting” of the Federal Open Market Committee, he said.
Several Fed officials have said the 287,000 new jobs reported in June came as a relief after employers added just 11,000 in May. The committee appears divided, however, over whether that means the Fed should get back to tightening policy in coming months.
Kaplan, who took over in Dallas in 2015 and doesn’t vote on the FOMC this year, didn’t say how many rate hikes he believed would be appropriate for the rest of 2016. Prices in the federal funds futures market indicate investors don’t expect the Fed to increase rates through December.
The FOMC next meets July 26-27 in Washington.
Kaplan said he’s uncertain over whether a tightening labor market may begin to spur higher inflation or prices will be held down by sluggish economic growth. The Fed’s preferred measure of inflation stood at 0.9 percent in the 12 months through May, below the central bank’s 2 percent target.
“The jury’s out,” he said. “It may slow progress on the inflation mandate if we have slower GDP, but I don’t know yet.”
Kaplan, 59, said slow GDP growth in the U.S. and in other developed countries would continue for the foreseeable future because of long-term factors outside the Fed’s control, such as population aging and inadequate education and training.
“We’re to the point where we need actions beyond just monetary policy,” he said. “Actions beyond just monetary policy would be helpful globally.”
Kaplan said it was too early to judge the economic impact of the U.K.’s decisions to leave the European Union, though he said the immediate financial-market reaction is “working its way through the system.”
He said the Brexit vote helped explain historically low yields on U.S. Treasuries as investors flocked to safe assets, but he added that Treasury yields were also “heavily influenced by prospects for future growth.”
The yield on 10-year U.S. Treasury notes fell to less than 1.4 percent in the wake of the June 23 U.K. referendum, from almost 1.8 percent before.