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Fed’s Kaplan says he supports withdrawing monetary support once pandemic is over

FILE PHOTO: Dallas Federal Reserve Bank President Robert Kaplan speaks at the Commonwealth Club in San Francisco

By Jonnelle Marte

(Reuters) -The Federal Reserve should begin to withdraw monetary support soon after the pandemic is over, a moment that could set off robust economic growth, Dallas Fed Bank President Robert Kaplan said on Wednesday.

The central bank should start by reducing the scale of its asset purchases from the current pace of $120 billion a month, Kaplan said, though he stopped short of saying that the purchases must end completely before the Fed lifts interest rates.

“My thought is the tapering would come first,” Kaplan said during a virtual discussion organized by UBS. “I think in my mind it would be substantially completed before you dealt with Fed funds rate, but I would like to retain flexibility on that.”

The policymaker said the Fed’s support should remain in place until the pandemic is over, adding that the crisis could lead to economic scarring and that some people will need help returning to work.

Fed officials agreed last month to keep interest rates near zero and to keep purchasing $120 billion a month in bonds until “substantial further progress” is made toward the Fed’s goals for inflation and maximum employment.

The U.S. economy could see strong growth after it emerges from the coronavirus pandemic but the distribution of vaccines will need to outpace the new variants of the virus spreading now, he said.

The U.S. economy could grow by 6.5% in 2021 and the unemployment rate could approach 4% by year end, he said.

“Once we do emerge, we’re going to have very robust growth,” Kaplan said.

(Reporting by Jonnelle Marte, Editing by Franklin Paul)

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