Dallas Fed President Robert Kaplan said in a telephone interview that if Fed makes the pledge to keep rates near-zero into 2023, “you need to fulfill it, unless there’s an extraordinary reason why you can’t…. My worry was that this would encourage in the shorter run more risk- taking and maybe create imbalances and instabilities.”
As the economy recovers, the so call-neutral rate will rise. In that case, he said, “if you keep your setting of the fed funds rate exactly where it is, you are actually increasing the level of accommodation.” If unemployment rate approaches 3.5% while inflation is a little below 2%, ” do you actually want to be increasing the level of accommodation? I don’t know if you do or don’t, and that’s the point,” he added.
