Too soon to say four rate hikes will be needed in 2016, Fed's Kaplan says

The US central bank should focus on whether it is on track to meet its inflation target, while keeping in mind that interest rates near zero are not ‘free’, they create distortions, Dallas Fed president Robert Kaplan said on Wednesday.

In remarks to Bloomberg TV, he said he would be watching progress on gross domestic product, unemployment and inflation.

As regards the inflation target, he said two to three years was the relevant time horizon, once the current drop in oil prices washed out.

“It was too soon to say” whether progress on those metrics would justify four interest rate hikes in 2016.

If the economy were making progress on all those fronts, then three to four hikes might be a reasonable base case, Kaplan added.

“But the economy never unfolds quite as you expect, so we are going to have to just going assess conditions and adapt to it.

“I am not going to be too predetermined or calvanistic about the rate path.”

He also said he was worried about the impact which the tensions in high-yield debt of energy companies might have on the availability of credit for highly-leveraged companies in other sectors.

That was already happening, Kaplan said.