Brexit Uncertainty Clouds June Rate Decision – Fed President Robert Kaplan

Federal Reserve Bank of Dallas President Robert Kaplan spoke with Bloomberg Television’s Betty Liu, Mark Barton, and Michael McKee today. He discussed his expectations for a consumer rebound, his support of a rate hike if GDP and jobs data come together, and how the U.K. Brexit debate will factor into the Fed’s next interest rate decision.

On how much Brexit will influence the Fed, Kaplan said: “It’ll be a factor…Our meeting is the 15th and 8 days later is the vote. I’m going to have to make an assessment on June 15 what the likelihood is, and right now, it’s a little bit unclear — or it’s unclear. Forget a little bit, it’s unclear.  And if it’s still unclear on June 15, that’s going to be a factor.”

When asked whether the British vote to leave the EU, he said: “My own sense is, it’s still more likely than not that it isn’t going to happen but we’ll have to see….There is a whole range of impacts if it did happen, including, not the least of which on the U.K. currency, and ripple effects that might have to other countries, impact on flight to quality and other issues that will create some instability.  So, it will be a factor and if it did happen, we’re going to have to take some time to digest it.”
On whether slow grown means the Fed should take more time before raising interest rates, Kaplan said: “The job market has been strong, so right now, I’d put it differently. We need to reconcile GDP data with job data….Either the job data is going to get weaker, or, more likely, GDP is going to get stronger. I’m expecting the latter. And I think that if that happens, I personally will be moving toward advocating some removal of accommodations sooner rather than later. ”

MARK BARTON:  I want to introduce a very special guest today — Dallas Federal Reserve president, Robert Kaplan, who joins us from London exclusively today.  Mr. Kaplan, thank you very much for taking time out to join us.

Fed’s Kaplan: Rate Hike Sooner if GDP, Jobs Reconcile: http://bloom.bg/23dnxLH
Fed’s Kaplan: Brexit to Factor in June Rate Decision: http://bloom.bg/26AQjKN

ROBERT KAPLAN:  Thanks, Mark. Great to be here.

 

BARTON:  The big piece of data this week was the U.S. GDP.  We have the worst quarterly performance, as you know, in two years.  The statisticians can’t blame the weather this time.  We have seen a bounce back after the first quarters in 2014, 2015 — what sort of a risk is there that we won’t see a similar bounce back this time?

 

KAPLAN:  Well, there is certainly a risk on the positive side — the consumer is getting stronger.  While they might not have spent in the first quarter, their capacity to spend should be improving.  Their balance sheets are improving, jobs market’s strong, so we’re hopeful that you’ll see a rebound but I’d like to see the rebound.  It’s what I’m expecting in the second quarter.

 

BARTON:  Does the slow growth mean the Federal Reserve should take a little bit more time before it raises interest rates again?

 

KAPLAN:  The job market has been strong, so right now, I’d put it differently.  We need to reconcile GDP data with job data.  That’s going to happen one of two ways.  Either the job data is going to get weaker, or, more likely, GDP is going to get stronger.  I’m expecting the latter.  And I think that if that happens, I personally will be moving toward advocating some removal of accommodations sooner rather than later.

 

BETTY LIU:  Mr. Kaplan, this is Betty here in New York.  So, you mentioned that you believe the consumer is going to pick up, but so far, what we’ve seen is any income that’s been gained by the consumer seems to be headed more into their banks.  They’re really pocketing that money and not spending it.  How do you get consumers to spend that money?

 

KAPLAN:  Well, so then the question is, why aren’t they spending, and there’s a few possible reasons.  One is the financial turmoil of the first few months of this year really had an effect, and it’s understandable, if you turn on the television and you see turmoil, you might not be as likely to buy a car.  The other thing is, possibly that political uncertainty is having some effect.  And then the other issue, the population in the U.S. is getting older and people might be thinking toward saving for retirement, so the truth is, only time will tell, but they’ve got the capacity to spend, which is the first step in them spending, and it’s just a question of, when will we be likely to see that?  We’ll just have to see.

 

LIU:  And we also have to see whether this improving jobs market — we are basically at full employment here in the United States.  When is that also going to translate into some substantial wage gains, which we really have not seen?

 

KAPLAN:  Yes, we haven’t seen as much, other than in skilled trades, and I think part of what’s going on, there’s different theories on this — the job market has never been more global.  Companies think more globally about where to hire.  They have choices to position jobs globally, and I think that puts downward pressure on wages and affects in negotiating power of wage earners unless you’re in a skilled trade — construction, IT, some other skilled trade, and I think that’s maybe part of why you’re not seeing more wage pressure.

 

LIU:  OK, Robert, hang on one second because I want to bring in our economics editor, Mike McKee, who’s also joining in on the conversation.  Mike —

 

MICHAEL MCKEE:  I was listening in, Rob, and I had a question for Mark Barton but they said I should go ahead and ask it — Mark’s going to be going to the voting booth on June 23.  You’re going to be making a decision on interest rates on June 15.  How much is Brexit going to influence what the U.S. Fed does?

 

KAPLAN:  It’ll be a factor, because you laid it out exactly right.  Our meeting is the 15th and 8 days later is the vote.  We’re going to have to make an assessment — I’m going to have to make an assessment on June 15 what the likelihood is, and right now, it’s a little bit unclear — or it’s unclear.  Forget a little bit, it’s unclear.  And if it’s still unclear on June 15, that’s going to be a factor.

 

BARTON:  How will you make that assessment?  Sorry, Mike, for butting in, because if you look at the polls, Mr. Kaplan, they’re notably unreliable when it comes to U.K. and Brexit, and other elections worldwide.  So how will you make that assessment just eight days before —

 

KAPLAN:  We’ll use — and this has been part of this trip, I’ve had lots of conversations with people here on how they’re assessing it, and if the polls are unclear and they show it to be very close, then you’ve got other measures which are a little more

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