Fed's Kaplan says he would have been OK with a September rate hike

By Jason Lange

SAN ANTONIO (Reuters) - Dallas Federal Reserve President Robert Kaplan said on Monday he would have been comfortable with an interest rate increase at the Fed's policy meeting last week when the central bank chose to keep rates steady.

Kaplan is not a voting member on the Fed's rate-setting committee this year but he participates in policy discussions and will have a vote at next year's meetings.

"I would like to see some removal of accommodation. I would have been comfortable seeing that accommodation removed in September," Kaplan told a banking conference in San Antonio.

The Fed left its target range for interest rates on overnight loans between banks unchanged at its Sept. 20-21 meeting, and Fed Chair Janet Yellen said it was likely a rate increase would come by year's end. The Fed last raised rates in December, increasing them by a quarter point to end seven years of near-zero interest rate policy.

Kaplan said he was not that worried about the U.S. economy overheating, saying the labour market was not yet at full strength.

What concerns him more, he said, was that low interest rates could create "distortions" in the U.S. economy. He said he was watching how low interest rates were pushing investors to make riskier bets. An example of this, he said, was the rise in pressure on publicly traded companies from activist investors to borrow money in order to buy back shares.

Kaplan, whose first vote on monetary policy will come at the Fed's two-day meeting that ends on Feb. 1, said he expects the coming path of rate increases will likely be the most gradual in Fed history.

(Reporting by Jason Lange; Editing by Andrea Ricci)