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MEXICO CITY (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Friday that the U.S. central bank could begin to allow its $4.5 trillion balance sheet to shrink “as soon as September,” but that on interest rate hikes, he wants to be patient.

Speaking with reporters in Mexico City after a speech here, Kaplan said he is hopeful that winding down the balance sheet in a gradual and predictable way will reduce swings in financial markets.

At the same time, Kaplan reiterated his view that while the U.S. is near full employment, inflation has been muted, and he would like to see more progress before raising U.S. interest rates further.

“I think in these periods where you’re getting conflicting signals, the best course of action is to be patient,” Kaplan said. “I simply want to wait, I want to be patient and review more information to see how the economy is unfolding and see evidence that we’re making progress toward our 2-percent inflation goal.”

Kaplan supported the Fed’s two interest-rates hikes so far this year. The central bank has signaled it expects to raise short-term rates again before the end of the year.

But inflation failed to strengthen in recent months, despite an unemployment rate that is down to 4.4 percent, weakening the case for tightening monetary policy further.

Noting that inflation data was “somewhat better” in April and May than March, Kaplan told reporters that “as we remove slack from the labor market you’re going to likely see with a time lag more wage pressure, and some of that will likely translate into greater inflation pressure.”

Separately, Kaplan noted that the peso’s recent strengthening suggests investors are hopeful about prospects for a renewed trade agreement with the United States, and he reiterated his view that free and open trade are in the U.S. interest.

U.S President Donald Trump has vowed to redo trade agreements to get better deals for American workers.