Fed president: Near-zero interest rates may be needed for three years

Greg Nash

Dallas Federal Reserve President Robert Kaplan said Monday that near-zero interest rates will likely be needed for the next two to three years. 

Kaplan told Bloomberg Television that he would prefer the Federal Reserve not commit to low borrowing costs beyond that point. He also said he expects the U.S. unemployment rate to reach 4 percent or 3.5 percent by 2023, dropping from its current 8.4 percent. 

“I probably think it’s appropriate to remain accommodative, or maybe even highly accommodative,” Kaplan said. “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 interview marked Kaplan’s first public remarks since he voted against the Fed’s move to commit to low rates until inflation reaches and is on pace to “moderately exceed” 2 percent, according to Reuters

He told Bloomberg Television that the costs of making the commitment outweighed any benefits. 

Kaplan added that a fall in stock prices after the Fed’s decision was made public last week could be a healthy correction as long as credit spreads don’t widen. But he noted the markets haven’t completely taken into account the Fed’s announcement. 

He also said the U.S. economy is probably growing at a 30 percent annual pace this quarter and expects it to continue its growth into 2021 as it continues to combat the economic impact of the coronavirus pandemic, according to Reuters.

Tags Coronavirus Federal Reserve Inflation Interest rates Pandemic

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