Fed's Kaplan would support more rate hikes if progress continues

By Brad Morse

COLLEGE STATION, Texas (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Monday that he would support further interest rate hikes if the U.S. economy takes more steps toward reaching the Fed's goals of full employment and 2 percent inflation.

"As long as I continue to see us make progress, I will continue to support" further rate hikes, Kaplan said at an event at Texas A&M University, adding that he wants the Fed to move "gradually and patiently."

Kaplan, who votes this year on Fed policy, repeated his view that the economy will likely grow about 2.25 percent this year, but could grow faster, or more slowly, depending in part on the policies the new administration implements.

With government debt rising, reform of entitlement programs such as Medicare and Social Security must be on the table, he said.

"We've got to be really thoughtful about things that might increase debt to GDP," he said.

Once the Fed has raised rates a bit further, Kaplan and other policymakers have said, it will need to start shrinking its massive balance sheet by allowing maturing mortgage-backed securities and Treasuries run off.

Asked if he prefers to start with Treasuries or MBS, Kaplan said he would be inclined to act on both, but to tailor the approach to each type of security.

(Reporting by Brad S. Morse; Writing by Ann Saphir; Editing by Diane Craft and Leslie Adler)