Dallas Federal Reserve Chairman Robert Kaplan told CNBC on Tuesday that he will likely favor an interest rate hike before the end of 2022.
While he doesn’t see inflation becoming an issue any time soon, the central bank official said he expects the economy to progress enough to allow the Fed to begin withdrawing from the high levels of housing it has provided since of the Covid-19 pandemic.
Kaplan admitted it was one of the 2022 “points” revealed after last week’s Federal Open Markets Committee meeting that pointed to an increase next year. The Fed publishes each quarter a one-time plot of individual members ’expectations toward where rates will be directed over the next three years and beyond.
However, only three more 18-member FOMC officials agreed with Kaplan’s position, and the overall plot still did not indicate rises until at least 2023.
“There were some points that were starting to increase in 2022, and I’m one of those points, yes,” Kaplan told Squawk Box.
FOMC economic forecasts do not indicate the names of individual members and it is unusual for committee members to reveal where the point was.
But Kaplan said he is eager for the Fed to begin normalizing policy, though he still doesn’t believe that day has come. Kaplan does not get a vote on the committee’s official policy and will not do so until 2023, although he still has contributions to 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 walks. Kaplan did not indicate whether he was expecting two increases.
“The forecast has improved, my forecast has improved significantly,” Kaplan said, adding that he expects 6.5% growth in gross domestic product in 2021, according to the committee’s average estimate.
“That said, we are still in the middle of the pandemic and I want to see more than a forecast. I want to see real evidence that this forecast will be developed,” Kaplan added.
“As we do so and as we make substantial progress in achieving our dual-mandate goals, I will be an advocate of beginning the process of shifting some of these extraordinary monetary measures and doing so sooner rather than later,” he said. dit. “But I have to see results, not just a strong forecast.”
No worries about inflation
The Fed cut short-term benchmark lending rates to near zero last March and has bought at least $ 120 billion in bonds each month.
Some areas of the markets have expressed concern that the Fed may maintain these measures for too long, especially given the high level of fiscal stimulus. Recently, Congress approved a $ 1.9 trillion stimulus package and will soon begin work on an infrastructure program that could reach $ 3 trillion.
These concerns focus on rising inflation expectations, as indicated through rising bond yields.
However, Kaplan said he is not worried about inflation, although he expects it to rise this year, but only temporarily.
He said the pandemic-exclusive supply and demand problems will cause some price increases and year-on-year comparisons will appear high, but only because inflation slowed considerably during the early days of the crisis.
Inflation, Kaplan said, “is not just a one-time price hike. It’s a price increase year after year. I don’t think the jury is clear if we’ll see. It’s not my basic case.”
Kaplan added that he would not be in favor of the Fed adjusting its asset purchases to try to reduce longer-term government bond yields. The increase in yields reflects the economic upturn, he said, and he expects them to continue to rise as far as the ten-year rate rises to around 2%.