Fed’s Kaplan Sees Rates Near Zero for Up to Three Years

Dallas fed president kaplan one of two dissenters last week as the fed adopted new forward guidance that incorporates average inflation targeting you endorsed the old forward guidance and dissented on the new because

According to this statement you prefer the committee retain greater policy flexibility beyond that point what does that mean uh what it means is uh i i believe strongly

We should keep the current setting of the fed funds rate i.e at zero zero to 25 basis points until we've weathered the pandemic and we're well on track to achieve full employment

And price stability uh that by the way is probably going to take at least two two and a half three years the issue is beyond that point once we've weathered the pandemic and we're on track to reach our goals

I i probably think it's appropriate to remain accommodative or maybe even highly accommodative i'm not sure it's appropriate to decide right now that at that point we should leave rates at zero

I would rather leave those judgments to future committees because i think the world is going to look very different post-pandemic than it does now and i'd rather leave the judgment to

Future committees who can assess all the factors that are relevant in order to make that decision well does that suggest you think that we could come out of this with faster growth than most people are anticipating

Uh or i'll put it a different way in my own forecast i think we're gonna have solid growth in the third quarter 30 percent annualized a strong fourth quarter above trend growth in 2021 and in my own

Forecast by the year 2023 and i know that's going out a long ways uh we could we could start to approach uh an unemployment rate certainly below four percent say three and a half to

Four percent and so i believe that is possible obviously we'll have to see and a lot of that is going to depend on how will we manage this virus fiscal policy and a whole range of other

Decisions but when we get to that point the question before the house is do you want to do you want to still be accommodative in light of our new framework in order

To meet our inflation goal in order to remain accommodative does that mean we need to leave rates at zero and and i'm not sure but that's the point uh i think it's hard to know right now

That far in advance and i want to make those judgments at the time is that enough to dissent on important enough for me it for me it was uh and the

Reason it is is by making this commitment now uh first of all there are a few reasons why i descended what i just went through and then my own view is i'd rather use forward guidance where we got more

Positive benefit going into the meeting the world already thought that rates were going to stay extremely low for the next two or three years and so my concern was by making this

Commitment now i wasn't sure how much additional benefit we're going to be but on the negative side it means if you're in the in the asset markets if you're a saver if you're a

Pension fund if you're an insurance company if you're a market participant it basically gives you a signal that you're not going to be you're going to need to take more risk and my concern is

About building up excess risk taking which can create fragilities and other excesses in the system which are hard to see in real time and easier to see in hindsight but could create uh issues

For us to meet our goals and so that was the reason uh i felt that the the costs were not worth the benefits