Fed's Kaplan Says Tightening Should Be Gradual And Patient
Washington (Aug 2) Factors beyond the US pose risks to the domestic economy and these must be watched closely, so that policy can be tightened in a gradually and patiently, Dallas Federal Reserve President Robert Kaplan said Tuesday.
The central banker also said that there was need for economic policy action beyond monetary policy, such as structural reforms and fiscal policy, on a global level to address several key challenges.
"I am closely monitoring how slowing growth, high levels of overcapacity and high levels of debt to GDP in major economies outside the US might be impacting economic conditions in the US," Kaplan said in a speech in Beijing .
"I am also closely tracking how these issues might be affecting the slope of the US Treasury yield curve as well as measures of tightness in financial conditions."
Kaplan said China's transition from an export-and-manufacturing-driven economy to a consumer and services-based one, and hence lower growth rates, should be monitored carefully for spillover effects on currencies and global financial conditions.
Regarding "Brexit", Kaplan said it will take time for events to unfold before one can assess the ultimate impact on the economies of the UK , Europe and the rest of the world.
"In light of these challenges, I have been suggesting that removal of accommodation should be done in a gradual and patient manner, based on a realistic assessment of progress toward achieving the Federal Reserve's dual-mandate objectives regarding full employment and price stability," Kaplan said.
"I am also very cognizant that, from a risk-management point of view, our monetary policies have an asymmetrical impact at or near the zero lower bound."