Dallas Federal Reserve Chairman Robert Kaplan told CNBC on Tuesday that he is likely to be in favor of an interest rate hike before the end of 2022.
Although he doesn’t see inflation becoming a problem anytime soon, the central bank official said he expects the economy to progress enough to allow the Fed to start reducing the high levels of accommodation it has provided since the Covid-19 pandemic. .
Kaplan admitted it was one of the 2022 “points” revealed after last week’s Federal Open Market Committee meeting, which pointed to an increase next year. The Fed releases a quarterly chart of individual members’ expectations about the direction the rates will take in the next three years and beyond.
However, only three other 18-member FOMC officers agreed with Kaplan’s position, and the overall plot still did not indicate increases until at least 2023.
“There were some points starting to increase in 2022, and I am one of those points, yes,” said Kaplan in the “Squawk Box”.
The FOMC’s economic forecasts do not list the names of individual members, and it is unusual for committee members to disclose where their point was located.
But Kaplan said he is looking forward to the Fed starting to normalize policy, even though he does not think that day has yet come. Kaplan will not vote on the committee’s official policy and will not vote until 2023, although he still has information on the decisions and makes an individual forecast on economic conditions and the trajectory of interest rates.
Three of the 2022 points indicated an increase, while the fourth pointed to two increases. Kaplan did not say whether he was expecting two increases.
“The forecast has improved, my forecast has improved significantly,” said Kaplan, adding that he expects a 6.5% growth in gross domestic product in 2021, in line with the median committee estimate.
“That said, we are still in the middle of the pandemic and I want to see more than one forecast. I want to see real evidence that this forecast is going to develop,” added Kaplan.
“In doing so, and as we make substantial progress towards meeting our dual mandate goals, I, at least, will be an advocate for the initiation of the process of moving some of these extraordinary monetary measures and doing so sooner or later” , he said. “But I need to see the results, not just a strong forecast.”
No worries about inflation
The Fed cut benchmark short-term lending rates to almost zero last March and has been buying at least $ 120 billion in bonds every month.
Some areas of the markets fear that the Fed may be holding these measures in place for a long time, especially considering the high level of fiscal stimulus. Congress recently approved a $ 1.9 trillion stimulus package and will soon begin work on an infrastructure program that could reach $ 3 trillion.
These concerns are focused on increasing inflation expectations, as indicated by the increase in bond yields.
However, Kaplan said he is not concerned about inflation, although he expects it to rise this year, but only temporarily.
He said the pandemic’s unique supply and demand problems will cause some price increases, and year-over-year comparisons will appear high, but only because inflation has eased considerably during the early days of the crisis.
Inflation, said Kaplan, “is not just a single price increase. It is price increases year after year. I think the jury is determined if we are going to see this. It is not my base case.”
Kaplan added that he would not be in favor of the Fed adjusting its asset purchases to try to reduce yields on long-term government bonds. The rise in yields is reflecting the economic recovery, he said, and expects them to continue to rise, where the 10-year note is around 2%.