Dallas Fed President calls for greater investment in education

Robert Kaplan, president and chief executive officer of the Federal Reserve Bank of Dallas, speaks during a community forum luncheon at Louisiana Tech University in Ruston, Louisiana, U.S., on Monday, April 11, 2016. Kaplan said he doesn't back an interest-rate increase this month in light of a puzzling weakening of economic growth, though a June tightening by the U.S. central bank remains a possibility. less Robert Kaplan, president and chief executive officer of the Federal Reserve Bank of Dallas, speaks during a community forum luncheon at Louisiana Tech University in Ruston, Louisiana, U.S., on Monday, April 11, ... more Photo: Derick E. Hingle, Bloomberg Photo: Derick E. Hingle, Bloomberg Image 1 of / 3 Caption Close Dallas Fed President calls for greater investment in education 1 / 3 Back to Gallery

Dallas Fed president Robert Kaplan rendered an optimistic view of economic conditions in Texas and the United States on Wednesday, but said there were some "dark clouds" ahead, including the lack of state funding for education.

Kaplan, who's been in office since last September, said at a lunch in downtown Houston sponsored by the Greater Houston Partnership that while the local economy may continue to face difficulties with struggling energy companies, he sees oil prices firming up and the job market remaining stable on account of an economic base that's much more diversified than it was in the 1980s.

Texas' strength has come in part from its high rate of growth relative to the rest of the country, Kaplan said, both from internal and cross-border migration. But in the long term, he continued, failing to invest in educating the millions of Hispanic immigrants who've arrived in Texas in recent decades — and particularly their children — poses a serious economic threat.

"The concern is, if Hispanics are the largest growing group, and their educational attainment levels are lagging, then the question is why?" he said. "The reason we talk about education is not because it's nice, but because it's key to our economic future."

Kaplan was interviewed onstage by his boss, Dallas Fed board chair Renu Khator, who is chancellor of the University of Houston System and a champion of education funding. The state education budget was cut deeply in 2011, and has been the subject of multiple lawsuits over whether the funding formula is equitable.

Kaplan, who serves as the chief monetary policymaker for the American Southwest, is similarly bullish about the national economy — with caveats. He's long been in favor of raising interest rates, and said he will recommend a hike in the near future, although Britain's vote on whether to leave the European Union could upset the apple cart.

And why raise rates now? The long period of near-zero interest rates, Kaplan told reporters later, has caused people to move money into riskier investments rather than stay in low-yielding bonds. "It can create pain to unwind those types of unbalances, so we've got to be aware of that," he said.

The longer-term problem, however, is that fiddling with the money supply won't heal some of the underlying weaknesses in the economy. "Since the stimulus in 2009, we haven't had much fiscal policy," Kaplan said. An infrastructure program could have helped produce faster growth, for example.

"The war of 2008 was deleveraging and stabilizing," Kaplan said. "The war of 2016 is, we've got to grow faster than we're growing. Monetary policy alone is not going to do the trick. And that's the dilemma that we're having right now."