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Kaplan says he wants Fed to avoid being ‘late’ on tapering

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

(Reuters) -Citing his concerns about excessive risk-taking in financial markets and potential inflation, Dallas Federal Reserve President Robert Kaplan said on Friday he will push for reducing the U.S. central bank’s support for the economy sooner than later.

“You don’t want to be preemptive, but I also don’t want to be so reactive that we are late,” Kaplan said in a virtual appearance at the Engage Undergraduate Investment Conference.

Once the coronavirus pandemic is weathered and it is clear there has been progress toward full employment and 2% inflation, Kaplan said he “will advocate” for pulling back on “some of the Fed’s extraordinary actions,” starting with trimming its bond-buying program.

Kaplan’s views are an outlier at the Fed, whose leadership is generally less eager to remove policy accommodation that they feel will be needed for years.

Most Fed policymakers believe it will be appropriate to keep interest rates near zero through the end of 2023, in large part because they think it will take that long to get inflation sustainably up to the Fed’s 2% goal and headed higher, a stipulation it has laid down before it will raise rates.

Kaplan has said he is one of four Fed policymakers who feel the central bank should start raising rates next year. On Friday, he said he would be looking at both data and forecasts over the next “several months” for signals that it’s time to start reducing the Fed’s $120 billion in monthly bond purchases.

“The variants make me say, not now,” Kaplan said on Friday, referring to new strains of the coronavirus that are causing surges in infections in much of the U.S. Midwest and Northeast.

But once the virus is under control, he said – not wiped out, but manageable without severe surges that overwhelm hospitals – he’ll take progress toward his forecast of 6.5% GDP growth, a 4% unemployment rate, and inflation “moderately above” 2% by the end of this year as evidence that the Fed ought to be starting to pare back its easy monetary policy.

“When it’s clear to me that that’s happening, I’ll be advocating that we should start withdrawing some of these extraordinary actions that we’ve taken, and yes it would start with asset purchases,” Kaplan said.

(Reporting by Ann SaphirEditing by Paul Simao)

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