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Comment: Dallas Fed’s Kaplan also taking wait-and-see approach on possible rate cut

Dallas Fed President Robert Kaplan echoed remarks by other Fed policymakers – Chair Powell, Chicago’s Evans, and San Francisco’s Daly – that risks to the outlook from trade are more elevated, but also that it is too early for the FOMC to cut short-term interest rates, even as an insurance move. Certainly policymakers have not ruled out lowering rates if the economy appears to be slipping towards recession and are alert to the possibility. However, a willingness to cut rates is not the same as an intention to do so. That will depend on the economic data and developments over a period closer to months, not weeks.

Kaplan said, “[I]t’s worth being cognizant of the fact that these recent tensions have just elevated in the last five, six weeks, and in the next five, six weeks, a number of them could be alleviated.” He thought that the threat possible fresh tariffs with Mexico could be resolved sooner, whereas the trade negotiations with China might be less speedily addressed.

Kaplan also commented that he is watching signals in the bond market with the declines in 10-year yields below the 2-year.

Kaplan further said, “We’re very cognizant of these downside risks, and very cognizant of the change in the shape of the yield curve.” he said. Given the recent nature of the elevation in risks, it is too soon to take any “specific action”. Kaplan is not a voter in 2019 but will return to voting status in 2020. In general, his moderate views have aligned with the FOMC consensus since he became President of the Dallas Fed in September 2015.

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