WSJ Interview: Fed's Kaplan Says It's Too Soon to Say How Trump Affects Rate View
While the results of last month's election signal big changes in U.S. government policy, at least one Federal Reserve
official isn't yet factoring this into his economic and interest rate projections.
Federal Reserve Bank of Dallas President Robert Kaplan, in an interview with The Wall Street Journal Wednesday,
cautioned that no one knows what economic policies will be enacted after President-elect Donald Trump takes office with
Republican control of Congress in January.
"As a central banker, I think it's very important to be patient and let events and policies unfold, and not attempt to
prejudge them—not to prejudge them because you know they may unfold in a way that we can't predict," Mr. Kaplan
said in the interview.
Stocks have rallied and bond yields have climbed since November's elections on expectations of tax cuts and increased
government spending under the new administration, which could boost U.S. economic growth.
Over the past year, Fed officials have trimmed their outlook for economic growth and interest rate increases amid a
disappointingly sluggish U.S. expansion and volatility abroad. If they now anticipate faster growth and higher
inflation, they might need to raise rates more aggressively to prevent the economy from overheating.
Mr. Kaplan spoke two weeks before the Fed's next policy meeting on Dec. 13-14. Investors and analysts expect the
central bank to raise its benchmark short-term interest rate by a quarter percentage point to a range between 0.50% and
0.75% due to the improving economy and labor market. Officials also will release their latest forecasts for the economy
and rates in the years ahead.
Mr. Kaplan said of his forecasts, "I'll base those projections on policies as we know they are today."
For now, he is ready for more rate rises. He told reporters at the Economic Club of New York appearance earlier
Wednesday that while he would make no predictions for the coming Fed meeting, he believes "we are at the point where we
ought to be removing some amount of accommodation in the near future, and that's where I am today."
In the interview, Mr. Kaplan again stressed that if the nation wants to address weak productivity and a declining
labor force, it will have to rely far less on monetary policy and move toward targeted government programs designed to
improve future performance. If this can happen, it would help the Fed do its job.
"With broader economic policy, it may well…we'll see how they materialize…it may well give us more
maneuvering room to normalize rates. And I think that'll be a healthy thing," he said.
Mr. Kaplan, who until recently taught at Harvard University after a long career at investment bank Goldman Sachs Group
Inc., said he isn't particularly worried about the possibility there are financial market imbalances so great that they
could derail the broader economy. However, student loan levels do worry him.
At over $1 trillion, the total level of student debt appears to be causing borrowers to delay forming new households,
which will be a long-term headwind to growth, he said.
He said he won't worry if Mr. Trump renews some of the harsh criticism he directed at the Fed during the campaign.
Mr. Trump accused the Fed of keeping rates low to favor Democrats but also offered mixed messages on what he saw as
appropriate Fed policy.
"Part of the price of admission is that you are going to get criticized," Mr. Kaplan said of being a central banker.
After just over a year in office, Mr. Kaplan said his colleagues take the mission to act independently and without
political favor "very, very seriously," and he doesn't expect that to change with Mr. Trump in office.
Mr. Kaplan also said that while long-term bond yields have risen since Mr. Trump's victory, he isn't worried this is
creating fresh headwinds to growth.
If rates rise, "it may not necessarily mean that there's any less availability of capital. But it's something I'll be
watching carefully," Mr. Kaplan said.
Write to Michael S. Derby at email@example.com
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