(Reuters) – With the U.S. economy at full employment and inflation at the Federal Reserve’s 2 percent goal, the U.S. central bank should press on with its plan for gradual interest rate hikes at least for the next nine to 12 months, a policymaker said on Tuesday.
Only once short-term rates reach a “neutral” level where they are neither stimulating nor braking the economy should the central bank potentially stop raising rates and figure out what to do next, Dallas Fed President Robert Kaplan said in an essay.
Neutral, he said, is somewhere between 2.5 percent and 2.75 percent.
“It would take approximately three or four more federal funds rate increases of a quarter of a percent to get into the range of this estimated neutral level,” Kaplan wrote in the essay, which was published by the Dallas Fed.
“At that point, I would be inclined to step back and assess the outlook for the economy and look at a range of other factors – including the levels and shape of the Treasury yield curve – before deciding what further actions, if any, might be appropriate.”
U.S. President Donald Trump told Reuters in an interview on Monday that he’s “not thrilled” with the interest rate hikes that have occurred under Fed Chairman Jerome Powell so far, and that the Fed should do more to help the economy.
Kaplan’s comments, though they did not directly address Trump’s remarks, underscore the Fed’s view that raising rates, as Kaplan put it, “will give us the best chance of managing against imbalances and further extending the current economic expansion in the U.S.”
Kaplan said he expects the U.S. economy to grow 3 percent this year but to slow next year as the effects of tax cuts fade. The narrow gap between long-term and short-term Treasury yields shows investors see slower growth ahead, he said, and also suggest the U.S. economy is in the late stages of an economic expansion that looks headed to be one of the longest in history.
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Source: Investing.com