(Bloomberg) --
"If I see meaningful improvement, I might be willing to kick the can and do nothing," Kaplan said Thursday in an interview on Bloomberg Television. "But I want to take every bit of time between now and September before I make a judgment and avoid being rigid or predetermined."
Kaplan's take is shaped by his experience on Wall Street, where he is now a
"If we didn't have the war in Iran and the spike in oil prices, which I think has raised headline inflation and bleeds into other items, my guess is we might not even be talking about the prospect of a rate increase," Kaplan said. He got more ammunition for his argument with Thursday's producer price index report showing a slowdown in US wholesale inflation.
He said Chairman Kevin Warsh should use his speech this month at the Jackson Hole symposium to briefly explain the reasoning behind the Fed's July hold rather than deliver a purely "philosophical" address. He said the Fed has a history of overusing forward guidance, echoing complaints from Warsh.
Kaplan expressed greater concern about the long end of the Treasury curve than about the Fed funds rate itself. The backup in long-maturity yields globally reflects a structural supply-demand imbalance driven by persistently wide fiscal deficits rather than Fed policy, he said.
"In a solid economy you would normally think that deficits would moderate somewhat," he said. "These deficits are not moderating."
Traders are signaling their unease with that trajectory by looking past the on-hold Fed. Thursday's monthly Treasury auction of $25 billion of 30-year debt is poised to deliver the highest yields since 2001.
(This story was produced with the assistance of Bloomberg Automation.)
--With assistance from Greg Ritchie.
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