Federal Reserve Bank of Dallas President Robert Kaplan said a "good base case" in 2017 would be three increases to the Fed's benchmark interest rate, adding that he did not rule out more hikes depending on the development of economic conditions.
Kaplan, who currently has a vote on the policy-setting Federal Open Market Committee, reiterated his previous calls for rates to be raised "gradually, patiently" at a U.S. Chamber of Commerce event in Washington, D.C.
On the prospect of winding down the Fed's massive balance sheet, built up under several rounds of quantitative easing following the financial crisis, Kaplan also advocated a gradual approach to limit the impact that reducing the balance sheet would have on the markets for mortgage-backed securities and U.S. Treasury securities.
In response to a question about the idea that balance-sheet strategy could be used as an alternative to moving the FOMC's target fed funds rate, Kaplan said interest rate policy should be the "primary tool" for monetary policy. "I don't want to mix those two up," he said. "I think we have to be conscious ... actions on the balance sheet have some effect, but I think we want to center our monetary policy on using the fed funds rate."
He also highlighted workforce growth as an area of concern in the U.S. With an aging population, a national training effort to address a skills gap — in which there are jobs available and not enough skilled workers to fill them — is necessary, he said. "While we're talking about it in this country, we're not talking about it enough," he said.
Immigration policy will also be important, Kaplan said, estimating that more than half of U.S. workforce growth over the next 25 years will be made up of immigrants and their children.