By Ann Saphir
EL PASO, Texas (Reuters) – The Federal Reserve will need to “look hard” at whether it should raise rates in December, but there is no need to wait for inflation to actually get to, or even begin to rise back to, the Fed’s 2-percent target before doing so, a Fed policymaker said Monday.
“I need to see some evidence that I think the cyclical forces are picking up enough that eventually it’s likely that inflation will start to build in the future, even if I can’t see it yet,” Dallas Fed President Robert Kaplan, a voting member this year on the Fed’s policy committee, told reporters in El Paso.
That is a different bar than some at the Fed are setting, including Minneapolis Fed President Neel Kashkari, who earlier in the day said he would want to wait on rate hikes until core inflation reaches the Fed’s 2-percent target.
But it may reflect the view of the majority at the Fed who anticipate raising rates again in December, given a U.S. unemployment rate of 4.4 percent and expectations that economic growth will be fast enough to create still more jobs ahead.
Fed Chair Janet Yellen has said she believes that inflation, which has confounded expectations this year by falling instead of rising, will rise back toward the Fed’s 2-percent target over the medium term.
Kaplan reiterated his view that the Fed “can afford to be patient” on raising rates, particularly next year, because odds are that U.S. growth is slower than it once was. That is a view also embodied in the decline this year in the yield on the 10-year Treasury, which Kaplan said acts as a constraint on how high the Fed can raise rates. The yield has been around 2.3 percent recently.
“We’ve got room to raise rates, but not as much as people might think,” Kaplan said. “We are going to have to look hard at whether we should take further action in December. I have an open mind about it.”