Robert Kaplan, president of the Dallas Federal Reserve, told CNBC on Tuesday that he would likely endorse a rate hike before the end of 2022.
Although he doesn’t see inflation becoming a problem anytime soon, the central bank official reckons the economy will develop to the point where the Fed is pulling back on the tall housing it has been providing since the Covid-19 pandemic can.
Kaplan admitted that it was one of the “points” of 2022 revealed after last week’s Federal Open Market Committee meeting, pointing to an increase over the next year. The Fed publishes a quarterly bulletin of each member’s expectations of where rates will go in the next three years and beyond.
However, only three other officials from the 18-member FOMC endorsed Kaplan’s position, and the conspiracy as a whole still showed no increases until at least 2023.
“There were some points that increased in 2022 and I’m one of those points, yes,” Kaplan said on Squawk Box.
The FOMC’s Economic Forecasts do not include individual member names and it is uncommon for committee members to disclose where their point is.
But Kaplan said he would strive for the Fed to begin normalizing policy, even if he doesn’t think that day has come. Kaplan will not receive a vote on official committee policy and will not do so until 2023, although he still has control over decisions and makes an individual forecast of economic conditions and interest rates.
Three of the 2022 points indicated an increase while the fourth indicated two hikes. Kaplan did not state whether he was the one expecting two raises.
“The forecast has improved, my forecast has improved significantly,” Kaplan said, adding that he expects gross domestic product to grow 6.5% in 2021, which is what the Median Committee estimates.
“Even so, we are still in the middle of the pandemic and I want to see more than one forecast. I want to see actual evidence that this forecast will unfold,” added Kaplan.
“As we do this and make significant further progress towards our dual mandate goals, I will be committed to addressing some of these exceptional monetary measures and doing so sooner rather than later,” he said. “But I need to see results, not just a strong forecast.”
No inflation worries
The Fed cut short-term benchmark rates to near zero last March and bought at least $ 120 billion worth of bonds every month.
Some areas of the markets were concerned that the Fed might hold these measures on for too long, especially given the high fiscal stimulus. Congress recently passed a $ 1.9 trillion stimulus package and will shortly begin work on an infrastructure program that could run to $ 3 trillion.
These concerns are centered on rising inflation expectations, as indicated by rising bond yields.
However, Kaplan said he was not worried about inflation, although he assumed it would only rise temporarily this year.
He said supply and demand issues unique to the pandemic will lead to price hikes and year-on-year comparisons, but only because inflation slowed significantly in the early days of the crisis.
Inflation, Kaplan said, “is not just a one-off price increase. It is price increases from year to year. I think the jury is very undecided about whether we will see this. It is not my base case.” “”
Kaplan added that he would not be in favor of the Fed adjusting its asset purchases in an attempt to lower longer-term government bond yields. The rise in yields is a reflection of the economic recovery, he said, and he anticipates they will continue to rise until the 10-year note is up around 2%.