Dallas Fed’s Kaplan: Has Eye on Yield Curve

Dallas Federal Reserve President Robert Kaplan told Bloomberg TV that he’s keeping a close eye on the yield curve and added he won’t be “blindly” advocating further rate hikes if the curve keeps flattening. Kaplan worried that the yield curve could be suggesting a sluggish pace of gross domestic product (GDP) growth ahead, and noted that the history of inverted yield curves is not positive.

Kaplan is concerned that some of the harsh trade talk could be undermining relations with Mexico, which may have already impacted politics there ahead of July elections, and which might make it harder to trade with Mexico in the future.

Kaplan spoke in Beijing overnight and addressed trade and tariffs, expressing hope that “very few, if any,” tariffs from the US and China “will actually get implemented” as its clearly in the interest of both sides to have a constructive trading relationship. That said, he thought there were legitimate issues to be discussed, though likely better negotiated behind the scenes. Kaplan was optimistic on US growth, though he saw it trending down to 1.75% by 2020, while inflation was expected to gradually move to 2% and the jobless rate move lower. Kaplan still views three hikes this year as the base case.

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