- Dallas Fed President Robert Kaplan says the central bank probably has four more rate hikes or so before it reaches the desired "neutral" level.
- Inflation could run above 2 percent for a bit before the Fed clamps down, he adds.
Speaking a day after the central bank released minutes from its May meeting, Kaplan said the Fed still has work to do before it can say it has its benchmark funds rate at a level that is considered "neutral" for growth.
"My own view is we should be raising rates until we get to neutral," he told CNBC's Steve Liesman in a live interview from Dallas. "We should do it gradually. I'm not prepared to say yet I want to go above neutral."
The release of the minutes moved markets Wednesday afternoon, likely on commentary out of the meeting summary that indicated the policymaking Federal Open Market Committee, of which Kaplan is a nonvoting member, is willing to let inflation run a bit hotter than normal as the economy continues in recovery phase.
That could mean the Fed will take a more dovish approach to policy, holding off on raising rates even if inflation climbs above the FOMC's 2 percent target.
Kaplan said he is in the camp that would be willing to let conditions heat up a bit.
"I want to run around 2, and if we got a little bit above it and I thought it would be short term and not long term, I could tolerate it," he said during the "Squawk Box" interview. "If I thought it would persist I think it would affect my policy views."
On top of the increase already approved in March, market participants widely expect the Fed to hike its benchmark rate a quarter point in June, followed by another move in September. However, traders have sharply pared back expectations for a fourth move in December. Last week, the market saw chances of a fourth increase above 50 percent; that fell to just above 40 percent as of Thursday morning.
Fed officials have been discussing where they might reach a "neutral" rate that is neither stimulative nor restrictive. Kaplan said he estimates that it's between 2.5 percent and 2.75 percent, compared with the 1.5 percent to 1.75 percent current target range.
On a separate matter, Kaplan said he is watching conditions in emerging economies such as Turkey and Argentina and the effects that Fed rate increases have in those parts of the world. He said that Fed tightening could trigger restraints on capital flows.
"If that gets pronounced enough, that could lead to a rapid tightening in conditions in the United States, which in turn could slow the economy," he said.
He spoke before President Donald Trump announced the cancellation of his summit with North Korea. Richmond Fed President Raphael Bostic told CNBC the development "a surprise" and part of "downside risks" for the economy.