The Federal Reserve can afford to take things slowly — Dallas Fed President Kaplan says

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The Federal Reserve will not raise interest rates a lot further because the economy’s growth potential has weakened, Dallas Fed President Robert Kaplan said on Friday.

Kaplan told CNBC in an interview he thought interest rates, currently in a range of 1%-1.25%, would probably peak around 2.5%, much lower than in previous monetary tightening cycles. 

Still, Kaplan saw the decline in September US job numbers as likely a blip related to the string of destructive hurricanes to hit US shores.

"A lot of these job losses are going to be temporary,” he said.

The Fed has been raising interest rates gradually since December 2015. It has boosted the federal funds rate four times since, with another hike expected in December.

Kaplan says the labor market continues to make solid progress despite the one-off September drop, which should allow the central bank to continue raising interest rates slowly.

"We can afford to be patient," he said. "We should still be removing accommodation but we can do it slowly and gradually."

One key issue giving Kaplan and other policymakers pause about further rate increases is an inflation rate that has been undershooting the Fed's 2% target for much of the economic recovery.

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