Fed official: The fleeting impact from Trump’s stimulus is at its height right now

Dallas Fed’s Kaplan comfortable with raising rates to a range between 2.5%-2.75%
Krisztian Bocsi/Bloomberg Robert Kaplan, president of the Federal Reserve Bank of Dallas

The president of the Dallas Federal Reserve said Friday the tax cuts and federal spending increases are having their biggest impact right now, suggesting they will not make lasting changes to the economy. Robert Kaplan, in an interview with Fox Business Network, said the economic impact from the Tax Cuts and Jobs Act will decrease next year.

“It is our view and it’s my view at the Dallas Fed that we’re at the height of the impact of the stimulus right now, the fiscal stimulus.

That will fade somewhat in ’19 and will fade further in ’20 and you still got some headwinds, sluggish labor force growth because the demographics [of] aging and sluggish productivity, those will start to kick in more as the fiscal stimulus fades,” he said.

Kaplan said trade disputes are having the impact of limiting capital expenditure growth.

“The tax legislation and tax reform cause companies to accelerate capex that they might have done a year or two from now to do it today because of the tax incentives,” Kaplan said. “I also think you’re seeing additional capex in the energy business because of the production growth, high prices but I do think companies are telling me that they, yes, they are taking a wait-and-see approach because of the uncertainty around trade. So, it’s having a little bit of a chilling effect and so that’s something to just be aware of and take note of.”As for the jobs report, Kaplan said it didn’t change his view of the U.S. economy. He also said he’s been expecting wage growth to accelerate, as it did in August. “I’ve been expecting for several months now that you’d see the wage number firming. And it’s consistent with a tight labor market, I still believe that a lot of the big structural drivers in the world, automation, globalization will mute overall inflation pressures. But I actually think the wage growth number is welcome and it is probably consistent with our outlook for the economy and what it’s been the last few months,” he said.