Economic News

Dallas Fed President Defends “Easing Off the Accelerator” Strategy

With the Federal Reserve’s recent interest rate hikes drawing the ire of President Trump, Dallas Fed President Robert Kaplan is defending the moves. In an essay reported on by CNBC, Kaplan wrote, “As we reach our dual-mandate objectives, I believe that the Federal Reserve should be gradually easing off the accelerator — we no longer need to be stimulating the U.S. economy.” He added, “As such, I believe we should be gradually and patiently moving toward a neutral policy stance.”

Kaplan’s essay comes on the heels of an interview where President Trump continued to attack the Fed over their recent rate increases. After suggesting the agency was “going loco” earlier this month, Trump said of Federal Reserve Chairman Jerome Powell, “Every time we do something great, he raises the interest rates,” adding that Powell, “looks like he’s happy raising interest rates.” The President also said, “I’m just saying this: I’m very unhappy with the Fed because Obama had zero interest rates … How the hell do you compete with that?”

Despite the President’s criticism, Kaplan maintains that the Fed is on the right path. With, as CNBC notes, unemployment at 3.7% and inflation pegged at just over 2%, the argument is that the U.S. economy is no longer in need of further stimulation via lower interest rates. While the current range is 2% to 2.75%, Kaplan says he’d be in favor of allowing rates to rise as high as 2.75 % to 3%. However he wrote in his essay, “I intend to avoid prejudging what, if any, further actions we should take once we get into the range of our best estimate of a neutral stance. I intend to make that judgment sometime in the spring or summer of 2019 based on the economic outlook at that time.”

Of course Kaplan’s assessment of the current Fed situation is not unique. In fact Atlanta Fed President Raphael Bostic recently used a similar analogy, stating, “[T]here is little reason to keep our foot on the gas pedal.” It should also be noted that the President’s words haven’t seemed to have an effect on the Fed’s path forward – the agency is expected to raise rates for a fourth time this year come December.

When it comes to both the worlds of economics and of politics, it seems the Trump v. Fed story has been playing mostly in the background. Still the fact that the President continues to attack the agency — something that’s been a rarity for a sitting president up until now — causes rebuttals like the ones from Kaplan and Bostic to make headlines (like this one). As mentioned the Fed is expected to increase rates once again later this year, so anticipate Trump ramping up his rhetoric about Powell and the agency then.

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