It’s that “P” word again from the Federal Reserve – patient. And that’s what Dallas Fed President Robert S. Kaplan believes the central bank should be, as global economic concerns continue to roil investors.
“It should be saying to people (that) we are going to take some time here to understand what is going on,” said Kaplan on Friday, marking the first time a Fed mover-and-shaker has talked publicly since the central bank decided Wednesday not to announce another rate hike. He believes that it is paramount on the Fed’s part that it chose not to use the word “balanced” in its language when describing global risks to the U.S. economy.
The Fed announced its first rate hike in a decade in December 2015, and comments from Fed policymakers at the time suggested four more rate increases would follow in 2016. But the fallow state of several world economies, including those of China, Japan, and some European nations, have made investors doubtful that the Fed would follow through. As such, they now expect that the central bank will only raise rates once in 2016.
According to Kaplan, global concerns and plummeting oil prices made him expect headwinds in the U.S. economy. He also criticized recent Chinese policy decisions to navigate its economy’s choppy seas as “clumsy” in Friday’s statements. “When you put all that together I think there is good reason to be patient (and) take more time to assess the impact on the U.S. economy,” said the Dallas Fed president, who does not have an official vote in policy decisions, but takes part in all Fed deliberations.
Referring to China’s “clumsy” moves, Kaplan talked about how the country made use of “circuit breakers” to put trading to a screech while stock markets was especially volatile earlier in the month, but ultimately failed to stanch the financial bleeding caused by selloffs. “It’s unusual for them in my experience to appear as clumsy as they were over the last six weeks and that clumsiness has jarred people,” he remarked.
In his comments, Kaplan did not mention any details on the potential timing of the Fed’s next rate hike.