Federal Reserve Bank of Dallas President and CEO Robert Kaplan today said that economic conditions and downside risks from accommodative monetary policy warrant a faster pace of interest rate increases.
“[A]s we continue to make progress in achieving our dual-mandate objectives, I believe that we should be taking steps to remove additional amounts of monetary accommodation,” he wrote in an essay posted on the Dallas Fed’s website. “ [M]oving sooner rather than later will make it more likely that future removals of accommodation can be done gradually—that is, reduce the likelihood that the Fed will get ‘behind the curve’ and feel the need to remove accommodation more rapidly.”
Reviewing available data, he concluded that the economy is moving closer to full employment and that headline inflation would return to the 2 percent mark over the “medium term.” As a result, he said policymakers need to consider risks of a persistently low-rate environment. “I also believe there is a cost to excessive accommodation in terms of penalizing savers, as well as creating distortions and imbalances in investing, hiring and other business decisions,” he wrote. “These imbalances are often easier to recognize in hindsight and can be very painful to address.”
Federal Reserve Bank of Boston President and CEO Eric Rosengren made similar comments today about accelerating the pace of rate hikes. In a New York speech, he said “that it will likely be appropriate to raise short-term interest rates at least as quickly as suggested by the Fed’s current [Summary of Economic Projections] median forecast, and possibly even a bit more rapidly than that forecast. Rosengren — who, unlike Kaplan, is not currently a member of the rate-setting Federal Open Market Committee — added that otherwise the Fed would “risk ‘overshooting,’ potentially jeopardizing the very significant progress of the U.S. economy since the financial crisis.”
