Tags: Fed | Kaplan | Rate | Hikes | Growth

Fed's Kaplan to CNBC: 2 More Rate Hikes for 2017, No 3 Percent Growth

(Dollar Photo Club)

By    |   Tuesday, 30 May 2017 09:22 AM

Dallas Fed President Robert Kaplan reportedly predicts two more rate hikes for this year as the central bank also begins trimming its balance sheet. 

Kaplan also cast some doubt on the Trump administration's hopes for 3 percent or better economic growth.

Kaplan sees growth likely continuing on the path of about 2 percent and not the 3 percent or more boom in gross domestic product that President Donald Trump and his economic advisors have been forecasting.

"Two things drive GDP: growth in the labor force and growth in productivity," he told CNBC. "The problem is labor force growth is very sluggish. And my own judgment and our economists at the Dallas Fed think it's going to continue to be sluggish the next 10 years because the population is aging and labor force growth therefore is slowing," he said.

Kaplan predicts two more interest rate increases in 2017 and a start to the process of unwinding the Fed's $4.5 trillion bond portfolio, most of which was accumulated after the financial crisis, CNBC.com explained.

"I think that removal of accommodation should be done gradually and patiently," he added.

The balance sheet ballooned during three rounds of bond buying the central bank conducted in an effort to boost the economy. While stock market values soared during the quantitative easing effort, broader economic growth has been mired around the 2 percent range.

Kaplan said the balance sheet should be "substantially less" than it is today but conceded that it likely will remain above $2 trillion.

"I don't want to put a specific number on it. If somebody says in the 2s, that sounds about right to me," he said.

Kaplan said while some of Trump’s ideas would be positive for the economy, he warned that restrictions on immigration could be a negative, as would tax cuts that are financed by increasing the government's budget deficit, CNBC explained.

"If it's tax reform, I think that could be helpful. If it's a tax cut financed by increasing the deficit, my concern is that may give a short-term bump to GDP growth, but not a sustainable bump to GDP," he said.

"And over the horizon we'll have similar growth that we have now, except we'll have more leverage, we'll have higher debt to GDP and I think that will be negative for economic growth."

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Economy
Dallas Fed President Robert Kaplan reportedly predicts two more rate hikes for this year as the central bank also begins trimming its balance sheet. 
Fed, Kaplan, Rate, Hikes, Growth
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2017-22-30
Tuesday, 30 May 2017 09:22 AM
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