Dallas Fed President Rob Kaplan on Monday tried to slow down the rush to an interest-rate cut, saying he would take more time to watch developments before deciding to ease.
“I believe it would be wise to take additional time and allow events to unfold as we consider whether it is appropriate to make changes to the stance of U..S. monetary policy,” Kaplan said, in an essay published on his bank’s website.
Kaplan is not a voting member of the Fed’s interest-rate committee this year. But he remains an influential voice stemming from his role on the central bank’s communications subcommittee.
Three, more dovish, Fed officials have already said they would support a rate cut as soon as the next FOMC meeting on July 31.
In his essay, Kaplan said trade tensions and uncertainty have increased significantly over the past two months.
The question is whether these forces are likely to persist in a manner that leaders to a material deterioration in the outlook for the economy, he said.
“At this stage, I believe it is too early to make a judgment on this question,” he said.
For now, solid 2% GDP growth this year remains his forecast, he said.
Kaplan also wasn’t as stressed about low inflation relative to some other Fed officials. He noted that the Dallas Fed’s own inflation gauge, the trimmed mean price measure of personal consumption expenditures, has been running near 2%. The Fed’s favorite measure, the PCE price index has been running at a 1.5% rate, well below the 2% target.
The Dallas Fed president said a decision to cut rates would not be “free.”
“I am concerned that adding monetary stimulus, at this juncture, would contribute to a build-up of excesses and imbalances in the economy, which may ultimately prove to be difficult and painful to manage,” he said.
Kaplan said he was “closely monitoring” developments in the economy and financial markets. He said he would be “highly vigilant’ about the downside risks from trade tension.
Stocks have been rising in anticipation of central bank stimulus. The Dow Jones Industrial
was up just under 20 points after having risen more than 600 points last week.