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Fed's Kaplan says could see financial condition tighten

Published 10/18/2019, 06:15 PM
Updated 10/18/2019, 06:21 PM
Fed's Kaplan says could see financial condition tighten

By Liz Hampton

DENVER (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Friday that it "bothers" him that banks can borrow from each other overnight more cheaply than they can for longer periods - a topsy turvy situation that he said could lead to tighter financial conditions.

The Fed targets the overnight bank-to-bank lending rate in a range of 1.75%-2.00%, and it has lately hovered around 1.85%. Meanwhile the yield on the benchmark 10-year U.S. Treasury note is 1.76%; the yield on a 5-year note is 1.57%.

"If you can't borrow short and lend long ... it is my judgment ... that you're eventually going to see a tightening of conditions," Kaplan said at an energy conference in Denver, adding that he is "agnostic" about whether the Fed needs to lower interest rates again this year.

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