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The impact of geopolitical-driven surges in crude oil prices was less harmful than a decade ago, Dallas Federal Reserve President Robert Kaplan said in a CNBC interview on Friday.
His remarks were in response to the U.S.-ordered drone strike against Iran top general Qassem Soleimani late Thursday, with his death expected to incite an increase in tensions in the Middle East and to potentially result in a sharp retaliatory response.
Expectations for a U.S.-Iran conflict have lifted crude oil futures for global benchmark Brent BRNH20, -0.07% and U.S. benchmark West Texas CLG20, +2.93% by more than 2% on Friday.
“We would’ve gotten a different reaction 10 years ago,” Kaplan said. “The effect is going to be more muted than we’ve seen historically,” he added, noting that the U.S.’s newfound status as an oil exporter would help offset the pain inflicted on consumers through higher energy prices.
He noted that if the price of crude rose between $5 to $10 per barrel, the impact would be relatively “balanced” in part because the U.S. economy was more energy-efficient than before.
Kaplan and the Dallas Fed’s staff oversee the eleventh Fed district which encompasses Texas, Northern Louisiana and southern New Mexico, regions that are heavily reliant on oil and gas production.
He is now a voting member of the Federal Open Market Committee for 2020 as part of the annual rotation that sees regional presidents of the U.S. central bank gain and lose their decision making power over the path of U.S. interest rates.
Kaplan indicated he would support efforts to allow for inflation to temporarily float above 2% but that this would have to be balanced by other “forward-looking” considerations.
Ultimately, he said the central bank shouldn’t shift the fed funds rate at the moment, and that he was unsure about the direction of the next change in interest rates.
“It’s too soon for me to say [where interest rates are headed]. At the moment, I’d stay agnostic,” Kaplan said.
On the balance sheet, the Dallas Fed chief said now that the crucial year-end hurdle was cleared and worries over the possibility of another surge in overnight funding rates have subsided, he hoped for a slower expansion in the size of the central bank’s portfolio of securities.
Other senior Fed officials also spoke on Friday. Richmond Fed President Thomas Barkin said the economy looked quite healthy, echoing remarks from other members of the FOMC.
See also: Why oil could hit $80 even without a ‘full-blown’ U.S.-Iran war
