Fed's Kaplan is open to one interest rate cut this year
Former JPMorgan Chase Chief Economist Anthony Chan and People's United Advisors CIO John Traynor on the state of the economy and the outlook for Federal Reserve policy.
Federal Reserve Bank of Dallas President Robert Kaplan suggested on Tuesday that he sees the case for lowering interest rates at the U.S. central bank’s policy-setting meeting in two weeks.
However, Kaplan noted that he doesn’t see the need for multiple rate cuts, but rather a “modest tactical adjustment” in the benchmark federal funds rate. Kaplan is not a voting member of this year’s 10-member Federal Open Market Committee.
“Not the start of a rate-cutting cycle, but a tactical adjustment that’s restrained and modest? That might be appropriate. I could see an argument for that,” Kaplan told The Washington Post.
Wall Street is pricing in a 100 percent chance of a rate cut at the July 31st meeting, although most traders -- 65.1 percent -- think it will be a more modest 25 basis point adjustment, with policymakers lowering the interbank lending rate to a range between 2.00 percent and 2.25 percent.
Federal Reserve Chairman Jerome Powell reinforced the belief that the central bank is preparing for easier monetary policy during his two-day appearance on Capitol Hill last week when he warned of “greater uncertainty.”
"Based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted," he said in prepared remarks for the House Financial Services Committee.
Minutes from the June FOMC meeting also revealed that officials were divided about whether to lower interest rates last month, with some members pushing for a reduction.
The dovish pivot signaled to some businesses that three rate cuts could be on the table this year -- but Kaplan said the economy remained fairly healthy, despite slowing global growth and the effects of the year-long U.S.-China trade war.
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“I think growth seems to be stabilizing around 2 to 2.25 percent. In other words, we’re still growing at or above potential,” he said. “That could change, but that’s still my view.”