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3/30/2017, 9:37 PM (Source: TeleTrader)
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Fed's Kaplan: Possibly over three hikes this year

An improvement in the labor participation rate in the United States will take a lot more effort, according to Robert Kaplan, head of the Federal Reserve Bank of Dallas. Speaking on Thursday in Washington, DC, he expressed optimism in the strength of the domestic economy as business and consumer optimism are higher, but he also added there is still no "dramatic increase" in consumption.

The terminal rate of interest that the Fed may settle with in the current normalization cycle is at 2.75% to 3%, lower than in past times, the policymaker said and underscored this year's median assessment for three quarter-point increases is a "good base case" but that "there could be more." At a point this year, rate-setters should announce a plan for the balance sheet and later start reducing it, but all actions need to be implemented in "a gradual and patient" way, Kaplan stressed.

Asked about challenges in the economy, he said people are being replaced by technology, population is ageing and that rising debt relative to the gross domestic product can exert significant pressure when rates get higher. The Dallas Fed chief suggested public-private partnerships and workforce development programs can get people back to the labor market and boost hours for the underemployed.

People are experiencing an increase in spending capacity, but that doesn't mean they will spend, he added, citing uncertainties such as outlooks for healthcare and pension. Turning to the world economy, Kaplan noted China has "a substantial level of overcapacity," spilling over to the global economy and dampening inflation in the US. 

This year's voting member of the Federal Open Market Committee stated macroeconomic indicators would improve even without expected fiscal policy action by the administration of President Donald Trump. However, he said, some of the discussed measures could be beneficial, while others could have negative effect.

Breaking the News / IT