Fed's Kaplan: Reserving Judgment on Need for Another Rate Cut
10 October 2019 - 1:29PM
Dow Jones News
By Michael S. Derby
Dallas Fed President Robert Kaplan said Thursday the central
bank's two rate cuts thus far this year were the right thing to do,
but he's reserving judgment about what should happen next.
"I am concerned that if non-U.S. growth continues to decelerate,
and weakness in U.S. manufacturing and business investment
intensifies, this weakness could spread to the broader U.S.
economy, ultimately impacting consumer confidence and spending,"
Mr. Kaplan wrote in an essay affirming his support of both rate
cuts.
But as the Fed approaches the rate-setting Federal Open Market
Committee meeting scheduled for Oct. 29-30, it is too soon to say
what should happen next, Mr. Kaplan said.
"Having adjusted the policy rate twice this year, it is my
intention to take some time to carefully monitor economic
developments," the official said. "I intend to avoid being rigid or
predetermined from here, and plan to remain highly vigilant and
keep an open mind as to whether further action on the federal-funds
rate is appropriate."
Mr. Kaplan isn't currently a voting member of the FOMC, which
lowered its overnight target rate range by a quarter percentage
point in both July and September. Markets see another cut at the
end of the month. The Fed trimmed the cost of short-term borrowing
to provide an otherwise healthy economy with some extra support at
a time of slowing global growth and rising uncertainty around
trade. Lower rates were also aimed at boosting inflation back to
the 2% target.
Most Fed officials have been on board with lowering rates, and
some have called for an even more aggressive campaign of lowering
rates. But other Fed officials, like the leaders of the Boston and
Kansas City Fed banks, have preferred for the Fed to wait until
more tangible evidence of economic trouble arrives before acting.
That said, those two officials haven't taken anything off the table
for the coming meeting.
Mr. Kaplan acknowledged that the Fed faces a balancing act with
monetary policy right now.
"I am mindful of the potential excesses and imbalances that can
be created as a result of excessive accommodation," he said. "I am
also alert to the possibility that recent escalations in trade
tensions could moderate somewhat and this, in turn, might alleviate
some of the downside risks to the U.S. and global economies," he
added. But Mr. Kaplan also said it is important for the Fed to look
ahead and act before genuine trouble strikes.
"If we wait to see weakness in the consumer before taking
action, we will have likely waited too long," Mr. Kaplan said.
"From a risk-management point of view, that is a mistake I prefer
not to make."
In his essay, Mr. Kaplan also said he supports the Fed finding a
more enduring technical fix for what has been unexpected volatility
in short-term lending markets. The Fed will soon start growing its
balance sheet to help with the situation, but there are other
options on the table as well.
"I support more-permanent steps to ensure the proper functioning
of repo and other short-term funding markets," Mr. Kaplan said. "I
am also supportive of taking steps to adjust the size of the
Federal Reserve's balance sheet in order to help achieve our
objective of implementing policy in an ample-reserves regime," he
said.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
October 10, 2019 08:14 ET (12:14 GMT)
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