(Adds comment on 10-year Treasury yield, Warsh)
PALO ALTO, Calif., Oct 10 (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday he wants to see more signs of upward inflation before raising interest rates again, but that low long-term borrowing costs may limit how far and fast rates can be raised.
The Fed has raised rates twice this year, and is widely expected to do so again in December. But even as the short-term interest rate targeted by the Fed has climbed, the yield on the benchmark 10-year Treasury has fallen, a reversal of what usually happens and a development that Kaplan said he sees as "a little ominous."
"I view that as a comment on future economic growth," Kaplan said at the Stanford Institute for Economic Policy Research. "And what I dont want to see us do is raise rates so fast that we get an inverted yield curve because history has shown an inverted yield curve has tended to be a precursor to a recession."
Kaplan, who votes this year on Fed policy, appeared on Tuesday to be wrestling with how to balance the costs of leaving rates low against the potential dangers of raising rates too fast. He repeated his concern that globalization and technology are keeping inflation muted, despite unemployment that sank in September to 4.2 percent.
While near-full employment is putting some upward pressure on inflation, he said on Wednesday, those secular forces are acting as headwinds. "Ill be looking for evidence that we are making progress or likely to make progress over the medium term in reaching our 2-percent (inflation) target," Kaplan told reporters after the event.
FED CHAIR CHATTER
Asked by a reporter what he thinks of former Fed Governor Kevin Warsh, Kaplan said he believes disagreement at the Fed is healthy.
Warsh is one of several people under consideration by President Donald Trump to run the Fed after Janet Yellen's term as chair ends in early February.
Warsh quit the Fed in 2011 over the Fed's decision to go ahead with buying bonds; most Fed policymakers believe the program helped the economy avert an even worse downturn.
"I think very highly of Kevin," Kaplan said. "He and I may disagree on some things. I think that's a good thing....I am confident that a good decision will be made and the Fed will operate very effectively in the future, including if it's Janet Yellen, who I think has done an outstanding job." (Reporting by Ann Saphir; Editing by Diane Craft and Sam Holmes)