Fed's Kaplan warns of unemployment 'overshoot' that could lead to a recession

Robert Kaplan, president of the U.S. Federal Reserve Bank of Dallas

Michael Nagle | Bloomberg | Getty Images

Robert Kaplan, president of the U.S. Federal Reserve Bank of Dallas

The unemployment rate in the U.S. is on its way to below 4 percent, a level that Dallas Fed President Robert Kaplan believes is an “overshoot” of full employment and a potential danger sign for the economy.

Consequently, he thinks the central ought to keep raising rates, at least three times this year, as a way to stop the economy from overheating.

“I have more conviction that we’re going to get down into the 3s in terms of headline unemployment. We’re going to overshoot full employment,” Kaplan said CNBC’s “Squawk Box” in a live interview.

“The history of overshooting full employment in this country has not been a happen one,” he added. “Normally, what happens is you get an overheating, the Fed has to play catch up, and what happens then is you tend to often have recessions.”

Kaplan is a nonvoting member on the Fed’s policy-setting Federal Open Market Committee.

He said he has increased his estimate for economic growth this year and now sees GDP growing at up to 2.75 percent, a forecast that mirrors one that New York Fed President William Dudley made Thursday.

However, he sees the Fed playing a central role in making sure growth doesn’t get out of hand.

“In my view, the best way to prolong this expansion is for us to move now in a gradual way, but to continue to remove accommodation, and I think that gives us the best chance to extend this expansion,” he said.

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