Fed's Kaplan sees sustained, gradual US rate hikes

[DALLAS] The Federal Reserve should be patient and cautious about raising short-term interest rates, but should nevertheless increase them in a sustained way, Dallas Fed President Robert Kaplan said on Wednesday.

What people should understand, he said, is that the Fed sees "a resilient economy and a sustained, but cautious and gradual path," for interest-rate hikes.

Mr Kaplan forecast "solid" growth of 1.9 per cent for the US economy this year, which he said is enough to push unemployment down further and help push inflation back up to the Fed's 2 per cent target. Near-zero interest rates have a cost, and the Fed should remove some monetary accommodation, he said.

Still, he said, the risk remains that slow growth abroad will spark tighter financial conditions in the United States and slow the economy. Indeed, Mr Kaplan said he is still assessing the impact of the abrupt tightening of financial conditions in the United States that occurred in January and February, when worries about global growth sparked a decline in the US stock market.

Mr Kaplan's comments were largely a repeat of views he has staked out in recent months, and that are largely in line with the Fed's policy leaders from Chair Janet Yellen down.

He declined to speculate on when the Fed will next raise rates, saying that to do so would only create confusion because his view could change if the economic data does.

The Fed last month signaled that two rate hikes are likely this year, but investors are pricing in just one.

REUTERS