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Federal Reserve's Kaplan says next interest rate move could be up or down

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Increased trade tensions are a concern for the US economy but Dallas Fed President Robert Kaplan is undecided if that means the next interest rate move should be a hike or a cut.

[ATLANTA] Increased trade tensions are a concern for the US economy but Dallas Fed President Robert Kaplan is undecided if that means the next interest rate move should be a hike or a cut.

"I'm agnostic at this point about whether the next move is up or down,'' Mr Kaplan told reporters Thursday after a conference at his bank on how technology was disrupting businesses. "I'm uncertain. I'm watching very carefully how these trade tensions unfold," cautioning that they have the potential to slow US growth.

His remarks are the latest to support Chairman Jerome Powell's patient approach to judging the next move in rates while monitoring the impact of an escalating US-China trade war.

Investors are betting on a rate cut this year but minutes of the Fed's last policy meeting released Wednesday showed officials expect patience to be appropriate for "some time."

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Mr Kaplan, speaking on a panel with Fed presidents from Atlanta, Richmond and San Francisco, said developments such as online shopping were reducing pricing power for businesses. That's a persistent drag on inflation, which has missed the central bank's 2 per cent target for much of the past seven years. Muted inflation, in turn, is reinforcing the Federal Open Market Committee's view of patience on rate moves, he said.

"I think our rate setting for the moment - key words being ‘for the moment' - is in the right area,'' Mr Kaplan said. "The new development over the last month has been increased trade tensions and more business uncertainty. That is going to take awhile to sort out how that might unfold or how long that might last."

Richmond Fed President Thomas Barkin, San Francisco's Mary Daly and Atlanta's Raphael Bostic, speaking on the panel, agreed that trade tensions represent the most significant downside risk for the US outlook, even as recent data for the economy has mostly supported Fed forecasts for solid growth.

"The data are good, the mood is teetering,'' Ms Daly said.

Mr Kaplan, who recently took a trip to China, said the Chinese leadership are more committed to stronger growth despite the growing dispute with the US.

"We could well see their currency devalue more," Mr Kaplan said. "They weren't bashful, some leaders we talked to, about mentioning that. Everything we learned suggested they are girding themselves.''

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