Fed’s Kaplan says markets have clarity on Fed’s policy path

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Federal Reserve Bank of Dallas President Robert Kaplan said the central bank has been clear to investors and businesses on where the benchmark policy rate will be over the next few years.

“The markets and the public have pretty good clarity,” Kaplan said in an interview with CNBC. “The markets expect that the fed funds rate is going to stay at zero probably until 2023.”

U.S. central bankers left their policy rate unchanged in a range of zero to 0.25% earlier this month, and said they expect that range will be appropriate until labor markets have reached their assessment of maximum employment and until “inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

Federal Reserve Bank of Dallas President Robert Kaplan

Bloomberg News

Kaplan said it was constructive to debate how quickly the Fed moves up the benchmark lending rate as these goals are within reach.

Kaplan dissented against the statement language. The Dallas Fed president said in a Sept. 29 essay that it will take at least until 2022 or sometime in 2023 for the economy to approach the goals.

“Beyond that point, I believe that the committee should retain greater policy rate flexibility to decide on the appropriate stance of monetary policy,” he said in the essay.

Kaplan told CNBC that the U.S. economy does need “additional fiscal stimulus,” and that it would create downside risks if it wasn’t forthcoming. U.S. stocks climbed Wednesday as lawmakers and the White House appeared closer to reaching a deal on more support for the economy.

The Fed’s preferred inflation benchmark rose just 1% for the year ending July, while the unemployment rate stood at 8.4% last month.

Kaplan started at the Dallas Fed in 2015. Previously, he was a Harvard Business School professor and before that was a Goldman Sachs Group Inc. partner.

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