Rob Kaplan, vice chairman of Goldman Sachs and former president of the Federal Reserve Bank of Dallas, said that if inflation remains high, the Fed may need to raise interest rates as early as September.
Kaplan said in an interview with Bloomberg Television: “If inflation data doesn’t cool down from now through September, I think it would be wise to take some action after weighing the risks—whether in September or in the fall. That would be the smarter approach.”
Traders sold short-term Treasury bonds, pushing up yields on some government debt, after Federal Reserve Chair Kevin Warsh suggested the Fed would remain focused on curbing inflation. Predictions from Fed officials further reinforced this hawkish signal, with half of them expecting interest rate hikes by year’s end.
Kaplan said that if inflation remains high, it would indicate that monetary policy is still too loose.
He also pointed out that the Fed’s policy actions are rarely one-time events, and interest rate adjustments typically come in two or three consecutive steps. “So I think if you’re planning to act in September, you need to be prepared—there might be one or two more adjustments,” he added.
Swap traders currently expect the Federal Reserve to raise interest rates by 25 basis points in October, whereas previously the market anticipated a rate hike not until March 2027. Before this week’s Fed meeting, the market widely expected the rate increase to be delayed and amount to 27 basis points. The two-year U.S. Treasury yield, which is most sensitive to policy changes, rose as much as 17 basis points on Wednesday—the largest gain since March—before retreating about 2 basis points during Thursday’s Asian trading session to 4.17%.
However, Kaplan cautioned against overinterpreting the Fed’s latest dot plot, noting it may not reflect the impact of the U.S.-Iran deal and the reopening of shipping routes. The outlook could differ when officials release their next set of forecasts in September.
“If I were still in my original position, I would urge everyone to interpret this scatter plot with caution, as we have just undergone a major transformation, and I want to give this change a chance to take effect within the system,” he added.
Kaplan, who served as president of the Dallas Federal Reserve from 2015 to 2021, attended Federal Reserve meetings chaired by Jerome Powell and Janet Yellen, Wash’s predecessors.
