Date
13 November 2018
Dallas Fed chief Robert Kaplan believes the US Federal Reserve has room to raise rates three times this year. Photo: Bloomberg
Dallas Fed chief Robert Kaplan believes the US Federal Reserve has room to raise rates three times this year. Photo: Bloomberg

Fed officials see strong US growth, disagree on rate hikes

The US economy is likely to grow more than 2.5 percent this year, boosted by tax cuts, two Federal Reserve officials said on Wednesday.

The growth would be fast enough to push the unemployment rate, already at a 17-year-low of 4.1 percent, further down, the officials said, according to Reuters.

“2018 is going to be a good year,” Dallas Federal Reserve Bank President Robert Kaplan was quoted as saying at an American Council of Life Insurers executive roundtable.

The economy is doing “extremely well”, Chicago Federal Reserve Bank President Charles Evans told the same forum.

 

While agreeing that growth will be good, the two Fed officials, however, disagreed on how close the economy is to overheating and the need for rate hikes this year, the report said.

Kaplan said he is worried about the economy overheating, and is convinced the Fed needs to move “deliberately” this year by raising rates three times.

But Evans said he supports fewer moves as “probably appropriate” so as to allow inflation to reach and perhaps temporarily rise above the Fed’s 2-percent target.

If inflation does not get to the central bank’s target by the end of the current economic cycle, the Fed will have a hard time fighting the next recession, Evans warned.

Their divide reflects the debate that will continue to dominate the Fed as Governor Jerome Powell takes over from Janet Yellen as Fed chair early next month, Reuters noted.

The majority, like Kaplan, are looking for three rate hikes, while a few, like Evans, want less.

Kaplan said the yield on the 10-year Treasury, currently around 2.5 percent, gives the Fed the “operating room” to raise rates three times this year, to 2.25 percent.

But he said the central bank should be vigilant so as not to invert the yield curve, which historically has been a harbinger of a recession.

Evans said he is not concerned about the shape of the yield curve or about the level of asset valuations.

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RC

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