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Kaplan Says Fed Has 'Luxury Of Patience' on Further Rate Rises

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12/06/2018 | 11:18am EST

By Michael S. Derby

Dallas Fed leader Robert Kaplan backed away from providing clear guidance about the interest rate outlook in a television interview Thursday, a potential signal his appetite for tighter monetary policy may be waning.

"Normalizing monetary policy was always going to be challenging and I think we're in the stage of this process where you're going to hear me shorten up on the prognostications and be much more vigilant as to what's going on in the economy," Mr. Kaplan said in the transcript of an interview on CNBC.

"I think we have the luxury of patience. And I'm not going to judge or predict what we're going to do in the December meeting," Mr. Kaplan said.

The central banker was interviewed ahead of a coming interest-rate setting Federal Open Market Committee meeting that has long been expected to deliver the fourth rate rise of the year, as central bankers raise their short-term target rate range in a bid to keep the economy from overheating.

But over recent weeks uncertainty has crept into the outlook. While growth and job data continue to look strong, inflation doesn't appear fixed to break beyond the Fed's 2% target. At the same time, there are increased worries about global growth, bond market yields are flashing a yellow signal about the outlook, and financial markets have been broadly unsettled.

Some Fed officials have already said the Fed should refrain from boosting rates further. The chiefs of the Philadelphia and Minneapolis Fed banks have questioned the need for action when there are no signs of inflation taking off.

On the other side, Fed Chairman Jerome Powell and New York Fed leader John Williams remain upbeat about the outlook and favor further rate rises, although they have offered little guidance in terms of timing.

Mr. Kaplan, who is not currently a voting member of the FOMC, has long favored slow and steady rate rises, and until recently, he spoke in favor of the Fed doing about three more increases into next year before moving to take stock of the economy. He said in an essay in late October that against the current overnight target rate range of between 2% and 2.25% he was most likely eyeing a range of 2.75% to 3%.

He told CNBC that "I think we ought to be very gradual and patient here. Inflation, in my judgment, isn't running away from us." He added, "I'm just seeing a high level of uncertainty. And I think it's a factor in my thinking."

Mr. Kaplan said he expects growth to slow next year as the influence of recent fiscal stimulus wanes.

"I'm very attuned to the possibility, if not the probability, that the economy is going to look very different in the first half of 2019 than it does today, because fiscal stimulus is waning and we've raised rates eight times over the last 2 1/2 , 3 years," Mr. Kaplan said. "So I think all of that means we ought to shorten up on our assessments and be willing to be very patient" on rates.

Mr. Kaplan did note that "I'm not predicting and we're not predicting a recession."

Write to Michael S. Derby at michael.derby@wsj.com

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