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Fed's Kaplan: 'Very strong' jobs report reaffirms view on rate hikes

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Fed's Kaplan: 'Very strong' jobs report reaffirms view on rate hikes

The latest U.S. jobs report showing an uptick in wage growth is "reflective of a strong economy" where Federal Reserve rate hikes need to continue, Dallas Fed President Robert Kaplan said in a FOX Business interview Sept. 7.

The Labor Department report showed that total nonfarm payrolls grew by 201,000 in August and also reflected a higher-than-expected increase in wage growth, which rose by 2.9% year over year. The latter helped solidify market expectations that the Fed would raise rates twice more this year, as central bank officials have signaled.

Kaplan told FOX Business that he had "been expecting for several months now" that wage growth would strengthen, saying it is reflective of a labor market that is "at or near full employment." That means the Fed should be moving toward a neutral monetary policy stance after years of keeping interest rates lower to stimulate the economy, Kaplan said.

"Everything that is in this jobs report today just causes me to reaffirm that view," Kaplan told FOX Business.

Cleveland Fed President Loretta Mester also told Bloomberg News that she backs further rate hikes from the Fed, which she said should be moving toward neutral. Mester is a voter on the Federal Open Market Committee this year.

Fed officials in recent weeks have begun weighing what the central bank should do once it reaches neutral, where the Fed is neither providing monetary stimulus nor taking a restrictive stance. Under officials' current median projections, the Fed could reach that level in 2019.

Kaplan has said the Fed should pause once it reaches that stage, but some of his colleagues have said they see the Fed potentially shifting to a restrictive policy stance.

Chicago Fed President Charles Evans, who had voted against a rate hike in 2017, said this week that the Fed should raise interest rates "likely a bit beyond neutral" to help the economy keep growing at a sustainable pace.

Meanwhile, Boston Fed President Eric Rosengren told CNBC ahead of the jobs report release that if economic growth continues, he thinks the Fed could "be in a situation where we need to have a somewhat restrictive monetary policy over time."

"When we have an economy that's already where we want it to be, there's no reason to be accommodative," Rosengren said.

Rosengren, Evans and Kaplan do not vote on the FOMC this year.

Analysts said the jobs report kept the Fed on its path to raise its benchmark rate again in late September and December.

"Wages aren't yet rising fast enough to scare the Fed, but the expectation that further gains are in the pipeline, given the lag from falling unemployment, explains policymakers' intentions to keep hiking," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients.

Futures markets suggest investors have all but priced in a September hike and became more confident the Fed would pull the trigger again in December. According to the CME Group's FedWatch tool, probability of a December hike rose to 76% as of 12:25 p.m. ET, up from 70.9% a day earlier.