Kaplan says he isn’t in favor of the Fed growing bond purchases
Robert Kaplan, president of the Dallas Federal Reserve, said he would not be in favor of changing the central bank’s bond-buying program, despite having some difficult times ahead for the US economy.
Speaking to CNBC on Wednesday, Kaplan said financial conditions were such that the Fed is unlikely to have to do more than its current pace of at least $ 120 billion a month in government bonds and mortgage-backed securities.
“I wouldn’t want to do that at this point,” he said during a Closing Bell interview. “I will go to the December meeting openly. But I think we have very accommodative financial conditions, we have historically low interest rates at the long end, and so I don’t know that the size of our bond purchases will increase or the duration of our bond purchases will extend would help address this situation that I’m worried about for the next three or six months. “
During this time, Kaplan expects a “challenging” economy, where growth could slow or stop significantly, mainly due to increasing coronavirus cases.
There were 176,785 new cases in the US as of Tuesday, although the pace has slowed slightly over the past week from the rapid growth seen in October and November, according to the Covid Tracking Project run by journalists at The Atlantic. Hospitalization and mortality rates continue to rise, and in some areas economic restraints have returned.
Investors have asked whether the Fed will increase bond purchases, which have increased its asset holdings to nearly $ 7.3 trillion, or whether it will change the composition by buying longer-term stocks. The minutes of the November meeting showed that members were “pretty soon” in favor of changing the program.
Kaplan said, however, that Congress would probably be better placed to get the economy through some difficult days ahead of the widespread adoption of vaccines, which should go online in the next few weeks.
He added that the sustained surge in the stock market is due to investors looking at what Kaplan expects to be “very strong” growth in 2021 as the difficult period looms.
“I think it’s more likely to respond to the idea that we’re going to have strong growth next year, although we have a tough stretch in the next quarter or two,” he said. “It could also respond to the prospect of fiscal stimulus that would help us get through the next three to six months.”
Kaplan is currently a voting member of the Federal Open Market Committee, but will lose that status in January.