Fed's Kaplan sees U.S. inflation rising but not 'running away'

By Richard Leong

NEW YORK (Reuters) - U.S. inflation is rising toward the Federal Reserve's two percent goal while not accelerating enough to suggest the economy is overheating, Dallas Federal Reserve President Robert Kaplan said on Tuesday.

Inflation is approaching two percent but it's "not running away from us," he said at an event titled "Energy, Trade, and Energy Growth" sponsored by the Council for Foreign Relations.

Inflation data for April indicated further growth on domestic wages and consumer prices although they fell short of market expectations.

Kaplan, who is not a voting member of the Federal Open Market Committee in 2018, said he expected the U.S. economy to grow about 2.50 percent to 2.75 percent in 2018, underpinned by the biggest tax overhaul in 30 years enacted last December.

He cautioned the tax boost would fade in 2019, slowing gross domestic product to 1.75 percent to 2.00 percent growth rate by 2020.

With businesses expanding and the consumer sector in "pretty good shape," Kaplan said the Federal Reserve will likely stay on track to raise key overnight borrowing costs at a gradual pace.

He told reporters after the event that he was not committed to whether the Fed would raise short-term interest rates two or three more times in 2018.

Interest rates futures implied a more than a 50 percent chance the U.S. central bank would increase rates by year-end to bring its target range to 2.25-2.50 percent, according to CME Group's FedWatch program.

The FOMC, which is scheduled to next meet on June 12-13, last raised its federal funds rate to 1.50 to 1.75 percent in March.

(Reporting by Richard Leong; Editing by Chizu Nomiyama)