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Fed wants 'healthy margin above' 125,000 new jobs each month, says Kaplan

Robert Kaplan, president of the Federal Reserve Bank of Dallas
Source: Federal Reserve Bank of Dallas

The U.S. Fed is looking for a "healthy margin above" 80,000 to 125,000 new jobs each month to give confidence of removing slack in the U.S. economy, Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday.

He said he needed more information to see how slower GDP growth reconciles with strong job growth, adding that the Fed needed to be patient and cautious in removing accommodation in light of global risks and imbalances.

Monetary policy operates with a lag and the Fed needs to balance progress towards the two percent inflation target and the timing of policy adjustment, he said.

A raft of global risks that could adversely affect the United States remain on the horizon and require close monitoring, Kaplan also said.

"I am closely monitoring how slowing growth, high levels of overcapacity and high levels of debt to GDP in major economies outside the U.S. might be impacting economic conditions in the U.S.," Kaplan, a centrist at the U.S. central bank, said in remarks prepared for delivery at an event in Beijing.

In his second appearance within a week, Kaplan repeated that he continues to back tightening monetary policy in a gradual and patient manner.

Kaplan, along with several other Fed policymakers, has urged renewed caution in trying to lift rates again since the U.S. central bank raised its benchmark interest rate for the first time in almost a decade last December.

Chief among his concerns is sluggish U.S. growth exacerbated by a changing world in which economies are more globally interconnected.

Kaplan warned that China's debt growth "may prove to be unsustainable," and that as its growth continues to slow the Fed "will continue to carefully monitor the potential spillover effects on currencies as well as global financial conditions."

The Dallas Fed chief, who is not a voting member on Fed policy this year but participates fully in deliberations, also said he would continue to monitor and assess the implications of Britain's vote to leave the European Union.

While the so-called Brexit vote has had little initial impact on the U.S. economy, Kaplan said it would take time before its ultimate effects on Britain, Europe and the rest of the world became clear.

Kaplan's comments make him the second policymaker this week to strike a modestly downbeat note on the Fed's ability to raise rates soon.

On Monday New York Fed President William Dudley, a permanent voter on the Fed's rate-setting committee, said that while it was "premature" to rule out a rate increase this year, negative economic shocks were more likely than positive ones.

Investors have curbed bets that the Fed will raise rates again in 2016. They currently see a one in three chance the central bank will raise rates at its December meeting, according to the CME Group.

The Fed still projects two more rate rises by the end of the year but has been stymied since December by a changing backdrop of global uncertainty and periodically disappointing U.S. economic data.

The Fed's next policy meeting is on Sept. 20-21.