(Reuters) – Dallas Federal Reserve President Robert Kaplan on Monday said the economy will likely need near-zero interest rates for the next two and a half or three years, but the U.S. central bank shouldn’t lock itself into low borrowing costs beyond then.
By 2023, he said, U.S. unemployment will likely have fallen to 4% or 3.5%, from its current 8.4%.
Once there, he said, “I probably think it’s appropriate to remain accommodative, or maybe even highly accommodative,” Kaplan said in an interview with Bloomberg Television. “I’m not sure it’s appropriate to decide right now that at that point we should leave rates at zero; I would rather leave those judgments to future committees.”
The comments were Kaplan’s first public remarks since he cast a dissenting vote last week against the Fed’s decision to promise low rates until inflation reaches and is on track to “moderately exceed” the central bank’s 2% goal.
On Monday, Kaplan said he thought any benefits of the new promise were outweighed by the costs of fueling risk-taking in financial markets, and he appeared to welcome the drop in stock prices since the Fed’s announcement.
The stock market’s overall valuation of publicly traded U.S. companies has been high relative to the size of the U.S. economy, he said, and as long as credit spreads don’t widen, a stock market correction can be healthy.
Still, he said, markets likely haven’t fully digested the impact of the Fed’s new low-rates promise.
The economy, Kaplan said, is likely growing this quarter at a 30% annual pace and will continue to grow strongly this year and next, assuming some further fiscal stimulus and progress with fighting the coronavirus pandemic, which threw the United States and the world into recession earlier this year.
(Reporting by Ann Saphir; Editing by Kevin Liffey and Paul Simao)