Fed’s Kaplan says patience on rates could last several months

(Reuters) – The Federal Reserve should leave interest rates where they are until the U.S. economic outlook is clearer, Dallas Fed President Robert Kaplan said on Tuesday, a process that in his view could take several more 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 said in an essay prepared for publication on the regional Fed bank’s website. “I expect we will get some further clarity during the first half of 2019.”

The U.S. central bank last week left the target range for its key policy rate at 2.25 percent to 2.5 percent, and promised to be “patient” before making any future adjustments to rates.

Its statement, issued after its January policy-setting meeting, gave no sense of how long the current stance would last, and Kaplan’s comments are among the first to provide a bit of a timeline.

Kaplan has been warning of a slowdown in 2019 for months, and has flagged tighter financial conditions, slowing global growth and trade tensions as risks to what last year was strong domestic economic traction. His essay – one of an occasional series – again flagged those risks, as well as a slowdown in housing and the manufacturing sector.

And though he said the labor market is extremely tight by historical standards, with 4 percent unemployment and hundreds of thousands of jobs created each month, structural changes in the economy like globalization and online shopping are keeping inflation from surging in response.

With inflation meeting the Fed’s 2-percent goal, the central bank he said “has the luxury of being patient over the next several months.”

It is also highly appropriate, he said, for the Fed to be open to changing its current plan to reduce the size of its balance sheet, currently at $4 trillion, based on economic and financial conditions. The Fed said it was discussing such changes and could make a decision in coming months.

Kaplan is not voter on monetary policy this year, but he takes part in the Fed’s regular policy-setting meetings in Washington.

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