The U.S. Federal Reserve should be on track for two more rate increases this year, the president of the Dallas Federal Reserve said May 31.
The way the central bank plans to reduce the $4.5 trillion in assets on its balance sheet should also be announced soon, Robert Kaplan said during an appearance at the Council on Foreign Relations.
The central bank raised its benchmark federal funds rate by 25 basis points March 25 to a target range of between 0.75% and 1.00%. In the minutes of its May meeting, the Fed proposed allowing its balance sheet to shrink by gradually capping reinvestments in Treasuries and mortgage-backed securities.
Kaplan said he approved of the asset reduction plan, noting that removing accommodative fiscal policies should be done "gradually and patiently."
He expects the Fed to study the "average daily volume in Treasury and mortgage-backed securities" as the balance sheet reduction begins, as a way to minimize the impact on those markets.
While some of the participants in the Federal Open Market Committee have expressed a desire to raise rates before beginning to reduce the balance sheet, Kaplan said on the sidelines of the meeting that he preferred to "keep flexibility about how we want to orchestrate this."
A rebound in April's core personal consumption expenditures to 0.2%, after a dip in March, indicates inflation and growth are "back on track," he said.
While inflation had been weak in the first quarter, Kaplan added, "stepping a little further back it has been gradually increasing."
The head of the Dallas Federal Reserve said his expectation for GDP growth is between 2% and 2.5% and unemployment would decline further this year. "My own view is that inflation over two to three years will get to 2%," he said.
Stronger personal consumption numbers are a sign that the U.S. central bank is pursuing the correct path with its plan to raise interest rates and reduce its balance sheet, he said.
But Kaplan also said that though he expected two more rate raises this year, a slowing economy could mean fewer.