Fed's Kaplan sees 2019 as a decision time on the way to rising rates

DALLAS / WASHINGTON (Reuters) – The US Federal Reserve is expected to continue to raise US interest rates until mid-2019, and will only have to make a decision when Dallas Fed President Robert Kaplan announced Friday.

Kaplan has already said he thinks the Fed should raise rates three or four times over the next nine to twelve months to raise interest rates to 2.5% to 2.75%, he said. -he. the seat of his bank.

Asked whether the rates should exceed this level, as suggested by Chicago Fed President Charles Evans earlier this week, Kaplan said it was too early to say.

"This is a judgment that I am not ready to make for the moment and that I have not yet to go because it will not be until the middle of the spring or the middle of the year. next year before we approach a level of neutrality, and I will return throughout my journey on what are the economic outlook, "he told reporters.

The debate on rate hike is paramount for the Fed under President Jerome Powell, who has so far overseen two rate hikes this year and is expected to raise rates twice before the end of the year. In a recent speech, Powell suggested mistrusting the neutral rate estimates to guide policy.

On Friday, Kaplan rejected the concept.

"If you know that the neutral rate is subject to revision and that it is a theoretical concept, you want to evolve gradually," he said. But the Fed must still estimate the neutral rate to judge whether the policy is accommodative, neutral or restrictive, he said, adding that he doubted the neutral rate would rise.

In addition, stimulus generated by tax cuts and increased public spending in the Trump administration is likely to fade in next year and 2020, a fact Kaplan believes pushes him to consider a rate hike in the middle of next year.

One of the factors he will monitor, he said, is whether short-term borrowing costs exceed longer-term borrowing costs, a phenomenon known as the reversal of the yield curve that has left predict every recent recession.

TRADE

Kaplan also said it was closely monitoring the tariff dispute between President Donald Trump and US trading partners.

"If we stop right now … in terms of the US economy, the impact has been modest," he said, adding that he thought the United States would settle their trade disputes in North America and with the United States. Europe in the short term.

With China, the process could take longer. And even if fighting with China on trade issues is the "right fight" to take because of the ongoing conflicts over technology transfers and the use of intellectual property, it would not be surprising that it takes months , even years.

"If it expands to more assets or lengthens, we (the Fed's decision makers) obviously reserve the right to revisit that and we will come back to it," Kaplan said.