January 24, 2018, 1:46 am
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Low 10-year yield an ‘ominous’ sign

PALO ALTO, Calif. - Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday he wants to see more signs of upward inflation before raising interest rates again, but that low long-term borrowing costs may limit how far and fast rates can be raised.

The Fed has raised rates twice this year, and is widely expected to do so again in December. But even as the short-term interest rate targeted by the Fed has climbed, the yield on the benchmark 10-year Treasury has fallen, a reversal of what usually happens and a development that Kaplan said he sees as “a little ominous.”

“I view that as a comment on future economic growth,” Kaplan said at the Stanford Institute for Economic Policy Research. “And what I don’t want to see us do is raise rates so fast that we get an inverted yield curve because history has shown an inverted yield curve has tended to be a precursor to a recession.”

Kaplan, who votes this year on Fed policy, appeared on Tuesday to be wrestling with how to balance the costs of leaving rates low against the potential dangers of raising rates too fast. He repeated his concern that globalization and technology are keeping inflation muted, despite unemployment that sank in September to 4.2 percent.

While near-full employment is putting some upward pressure on inflation, he said on Wednesday, those secular forces are acting as headwinds.

“I’ll be looking for evidence that we are making progress or likely to make progress over the medium term in reaching our 2-percent (inflation) target,” Kaplan told reporters after the event.

Asked by a reporter what he thinks of former Fed Governor Kevin Warsh, Kaplan said he believes disagreement at the Fed is healthy. – Reuters 
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