Federal Reserve Bank of Dallas President Robert Kaplan on Monday sounded a note of caution about cutting interest rates.

“I am concerned that adding monetary stimulus, at this juncture, would contribute to a build-up of excesses and imbalances in the economy which may ultimately prove to be difficult and painful to manage,” Kaplan wrote in an essay released by the Dallas Fed.

He said his base case is for “solid” economic growth this year and for the labor market to remain at or past full employment. “In addition, financial conditions -- the cost and availability of credit -- are particularly robust by historical standards,” he said.

Kaplan’s cautious tone contrasts with expectations in the financial markets that a July rate decrease by the Fed is all but a done deal. Investors see an almost 100% probability of a cut next month, with some looking for a half-percentage-point drop, according to pricing in federal funds futures contracts. One Fed official, Minneapolis President Neel Kashkari, has come out publicly for a 50 basis point move.

Kaplan acknowledged that “trade tensions and uncertainty have increased significantly over the past two months,” dampening business investments and possibly slowing manufacturing output. “Downside risks to the outlook have increased,” said Kaplan, who isn’t a voting member on the policy-setting panel this year.

‘Additional Time’

Still, he made clear he was not ready to ease borrowing conditions.

“It would be wise to take additional time and allow events to unfold as we consider whether it is appropriate to make changes to the stance of U.S. monetary policy,” he said.

Fed policy makers left rates unchanged at their June meeting, while signaling they were open to a cut as early as their next session in July. In a post-meeting statement, officials dropped a previous pledge to be “patient,” saying they would closely monitor incoming information and “act as appropriate to sustain the expansion.”

One data point they’re likely to closely watch is the June employment report, due out July 5. Growth in U.S. payrolls unexpectedly tumbled in May to 75,000, from 224,000 in April. In his essay, Kaplan played down the significance of the drop.

Tight Labor

“We believe that job growth in the range of 60,000 to 120,000 jobs per month will be consistent with a ‘strong’ jobs market for the remainder of 2019,” he said. That’s because the labor market is so tight, making it hard for employers to fill open positions.

Kaplan sounded less worried than some of his Fed colleagues about below-target inflation, saying he expected price rises to accelerate over the next year. Kashkari and St. Louis Fed President James Bullard have made the case that a cut in rates would help bolster inflation.

Inflation has run below the Fed’s 2% target for most of the past seven years and sat at 1.5% in the year through April.

At the same time, Kaplan doubted the tight labor market would produce problematically high inflation because of the inability of firms to raise prices. As companies are forced to pay higher wages, that’s “just as likely to lead to business margin erosion as” higher prices, he said.