Fed’s Kaplan says central bank should begin asset tapering in October

Dallas Federal Reserve President Robert Kaplan said Wednesday the central bank should begin reducing its monthly purchases of government bonds and mortgage-backed securities in October.

His view that the Fed should start cutting its $ 120 billion a month purchases is perhaps the most ambitious of any Fed president to date.

Other members of the Federal Open Market Committee, including Chairman Jerome Powell, have not yet made an explicit forecast of when they would feel comfortable pulling back the stimulus.

Kaplan told The Exchange that he is comfortable withdrawing the stimulus as he believes the US economy is in the midst of a healthy recovery.

“I feel that if the economy develops by our September meeting … if it turns out the way I expect, I would be in favor of announcing a plan at the September meeting and with in October to begin reducing. “

“The reason I’m saying we should start tapering soon is because I think these purchases are very well positioned to drive demand. But we don’t have a demand problem in the economy, ”he told CNBC’s Steve Liesman. “My thought is that I would sooner take my foot off the accelerator and reduce the revs.”

“What I don’t want to do is run at this speed for too long and then we have to be more aggressive on the road,” he said.

He added that the Fed’s asset reduction should be separated from its eventual rate hike.

Kaplan’s ambitious tone is not entirely surprising.

As a so-called “hawk”, Kaplan is among the Fed presidents more often in favor of tighter monetary policy and higher interest rates. Kaplan is not a voting member in 2021 of the Federal Reserve’s Open Markets Committee, the central bank body responsible for adjusting monetary policy.

His comments to CNBC came just hours after the Labor Department reported that inflation was held at multi-year highs in July. Economists often view rising prices as a symptom of a healthy economy, but too high inflation can indicate business is overheating.

The consumer price index (CPI) rose 5.4% year-on-year in July, the same level as in June and the largest increase since August 2008.

Kaplan said the current price hike was due to the mismatch between pent-up consumer demand from Covid-19 vaccines and overwhelmed supply chains.

Chairman Powell and other Fed officials have noted the recent acceleration in prices but believe that inflation is “temporary” and that prices will not continue to rise at their current hot pace for much longer.

This is the latest news. Please check again for updates.

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