Fed's Kaplan Urges No Further Rate Action Until Outlook Clearer

(Bloomberg) -- Federal Reserve Bank of Dallas President Robert Kaplan said he’s waiting on clarity about the U.S. economic outlook before supporting further moves on interest rates, but he expects the picture might start to clear up in coming months.

“I believe it would be prudent for the Fed to exercise patience and refrain from taking further action on the federal funds rate until the economic outlook becomes somewhat clearer,” Kaplan wrote in an essay titled “The Value of Patience” released Tuesday. “I expect we will get some further clarity during the first half of 2019.”

The Federal Open Market Committee pivoted decisively on Jan. 30 to a prolonged pause on interest-rate increases, declaring it would be “patient” as it determines future adjustments in borrowing costs that left open the possibility the next move could be a cut.

Kaplan, who next votes on policy in 2020, said he thinks the Fed has closed in on its 2 percent inflation target and price pressures will remain “somewhat muted” in 2019, giving the central bank room for patience. He pointed to growth risks including weakness in interest rate-sensitive industries and faltering consumer confidence. His essay largely repeats a relatively dovish argument he’s been making for months.

Kaplan said it’s “highly appropriate” for the Fed to be open-minded about its plans for running off its balance sheet holdings.

“My FOMC colleagues and I will continue to analyze and discuss the appropriate size and composition of the balance sheet -- and will be working toward making decisions on these issues over the coming months,” he wrote.

To contact the reporter on this story: Jeanna Smialek in New York at jsmialek1@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull, Sarah McGregor

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