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Fed's Kaplan keeping open mind on US rate hikes; says tax reform may be painful for some states

[PALO ALTO] Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday that he will be assessing the progress of the US economy toward full employment and looking for more signs of upward inflation as he weighs potential interest-rate hikes.

"I intend to keep an open mind about removing accommodation in upcoming (Fed) meetings," Mr Kaplan said in remarks prepared for delivery at the Stanford Institute for Economic Policy Research.

Mr Kaplan, who votes this year on Fed policy, has said he is concerned that globalisation and technology are keeping inflation muted, despite unemployment that sank in September to 4.2 per cent. While near-full employment is putting some upward pressure on inflation, he said on Wednesday, those secular forces are acting as headwinds.

"Over the next period of time, I will be assessing the economy's continued progress in removing labour slack, and I will be looking for evidence that building cyclical forces have the prospect of offsetting structural headwinds, such that we are likely to make progress toward meeting our 2 per cent inflation objective in the medium term."

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Additionally, the US central banker said that limiting the ability of Americans to deduct what they pay in state and local taxes from their federal tax bill "could be painful" for some US states already suffering from population drain.

"There's an undeclared war for people in the US," Mr Kaplan said at the Stanford Institute for Economic Policy Research, adding that workforce growth is key to economic growth.

States with low taxes like Texas are already winning population from states with higher taxes, and tax reform that would make it even more costly to live in high-tax states would exacerbate those migration trends, he said.

A US tax reform package currently under consideration would cut the deductibility of local and state taxes.

REUTERS