Dallas Federal Reserve Chairman Robert Kaplan would like the central bank to announce next month that it will begin to curb policy.
Among its reasons is a common belief that the economy could cope with a little less help from the Fed. But Kaplan also expressed concern about inflation and the “extra risk taking” that has led to “distortions” in financial markets, especially bonds.
“Based on everything I’ve seen, I don’t see anything at this point that could cause me to significantly change my perspective,” Kaplan told CNBC’s Steve Lysman. “I think when we get to the September meeting we’ll be well served to announce a plan to respond to purchases and start executing that plan in October or soon after. Ira. “
Kaplan spoke about the critical issue of the Fed’s “taper” – when it would be appropriate to start pulling back the $ 120 billion in monthly bond purchases it has committed to since the early days of the Covid-19 pandemic. His remarks come a day before a speech closely watched by Fed Chairman Jerome Powell, who will be speaking at a virtual Jackson Hole symposium.
Earlier today, CNBC aired an interview with Kansas City Fed President Esther George, who expressed the same sentiment that she sees the cut starting soon. St. Louis Fed Chairman James Bullard was even tougher in CNBC’s comments.
Both have said that the growing cases of Kovid and its delta variant are cause for concern, but they are not having much impact on the economy at large.
“What we are seeing is that businesses and consumers are learning to adapt and evolve in their lives, and they realize that it won’t be crisp and clean or a straight line,” Kaplan said. “It will be in spurts, and they adjust to that reality.”
However, he is worried about the impact of the Fed’s ultra-lax policy on the economy.
Inflation hovers around a decades-long high in 2021, and Kaplan said rising gasoline and housing prices are affecting low-income communities in his district.
“What we are seeing in these communities is that inflation is disproportionately affecting them,” he said. “I think at the Fed we need to take this very seriously.”
Kaplan cited the ripple effects that rising house prices push up rents.
He also said he expected higher levels of risk taking, especially in the high yielding portion of the fixed income markets.
For these two reasons, he thinks it is time for the Fed to reduce its accommodations.
“I think we’ll be much healthier if we can start buying sooner, and that will put us in a much better position for the future,” he said.
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