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Fed's Kaplan Warns Unemployment 'Overshoot' May Spark Recession

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By    |   Friday, 12 Jan 2018 11:24 AM

Dallas Federal Reserve Bank President Robert Kaplan reportedly there's a chance unemployment will drop below 4% and overshoot full employment.

Meanwhile, he told CNBC the central bank ought to increase interest rates at least three times in 2018.

He also raised his projection for economic growth but said rate hikes are central to making sure that doesn't get out of hand.

"I have more conviction that we're going to get down into the 3s in terms of headline unemployment. We're going to overshoot full employment," Kaplan said CNBC's "Squawk Box" in a live interview.

"The history of overshooting full employment in this country has not been a happen one," he added. "Normally, what happens is you get an overheating, the Fed has to play catch up, and what happens then is you tend to often have recessions."

Kaplan isn't the only Fed official to fire economic warning shots.

To be sure, one of the Fed's most influential members on Thursday offered a point-by-point critique of U.S. President Donald Trump’s sweeping tax cuts, warning they put the country on an unsustainable fiscal path that will imperil the economy’s stability down the road, Reuters explained.

New York Fed President William Dudley, a key architect of the U.S. central bank’s decade-long response to the financial crisis, said the new cuts to corporate and individual taxes will provide a short-term boost but leave the economy more vulnerable in the years to come. Not only could the bill eventually hurt U.S. creditworthiness, it is unlikely to bring about spending since corporations and the rich benefit the most, he said.

The comments from Dudley - in which he maintained a “strong case” for the Fed to keep gradually raising interest rates - suggest that central bankers will not hesitate to criticize the tax plan’s timing and the economic assumptions of its Republican backers. Other Fed officials have also raised alarms on the longer-term costs of the bill, though interviews with several of them in recent days suggest there is no appetite to adopt more or less aggressive rate hikes just yet.

“The economy has considerable forward momentum, monetary policy is still accommodative, financial conditions are easy, and fiscal policy is set to provide a boost. But, there are some significant storm clouds over the longer term,” Dudley, who is set to step down in mid-2018, told a Wall Street forum hosted by SIFMA.

The tax cuts, he said, “will come at a cost. After all, there is no such thing as a free lunch.”

For his part, Trump touts the record stock market and sweeping tax reform.

“It is going to be tough to beat the year we just left because what we had last year was something very special, especially to cap it off with the tremendous tax cuts and tax reform,” Trump recently told reporters.

(Newsmax wire services contributed to this report).

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Dallas Fed President Robert Kaplan reportedly there's a chance unemployment will drop below 4% and overshoot full employment.
fed, kaplan, recession, unemployment
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2018-24-12
Friday, 12 Jan 2018 11:24 AM
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