US Fed's Kaplan: Too soon to determine effects of tariff threats

Chairman of the Dallas Federal Reserve Robert Kaplan spoke on Bloomberg TV today, giving his take on the current tariff environment and interest rates.

Key highlights

Kaplan stated that it is too early to judge the economic effects of all the tariff talks, but he does think that trade issues will be solved quickly once trade talks do begin, although Kaplan did point out that rhetoric has been aggressively elevated and if both sides don't come to the negotiating table soon then it could be damaging to the economic outlook.

Kaplan then switched tack and moved into rate talk, seeing at least 3 rate hikes for 2018, stressing that the Fed needs to raise rates because the US is nearing full employment, and the US is facing skilled labor shortages, and Kaplan further expects to see firming up in inflation pressure over the year, while also noting that the yield curve is flattening, pointing towards sluggish GDP growth, and he noted that the Fed will be watching the yield curve closely given the bad history attributed to inverted yield curves.

Kaplan further touched on GDP to debt ratios, stating that the US is very much interest rate sensitive right now due to the high ratio, and stressed that the government needs to moderate their debt growth going forward.