Dallas Federal Reserve President Robert Kaplan said Wednesday that the central bank should begin to taper its monthly purchases of Treasury bonds and mortgage-backed securities in October.
His view that the Fed ought to begin cutting back on its $120 billion per month purchases is perhaps the most ambitious from a Fed president to date.
Others on the Federal Open Market Committee, including Chairman Jerome Powell, have not yet given an explicit forecast for when they would feel comfortable pulling back on the economic stimulus.
Kaplan told “The Exchange” that he feels comfortable pulling back on the stimulus since he thinks the U.S. economy is in the midst of a healthy rebound.
“It would be my view that if the economy unfolds between now and our September meeting … if it unfolds the way I expect, I would be in favor of announcing a plan at the September meeting and beginning tapering in October.”
“The reason I’m saying we ought to begin the tapering soon is I think these purchases are very well equipped to stimulate demand. But we don’t have a demand problem in the economy,” he told CNBC’s Steve Liesman. “My thought is I’d rather take the foot off the accelerator soon and reduce the RPMs.”
“What I don’t want to do is keeping running at this speed for too long and then we’re going to have to take more aggressive action down the road,” he said.
He added that the Fed’s asset tapering should be separate from its eventual move to raise interest rates.
The ambitious tone from Kaplan is not wholly surprising.
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 2021 voting member on the Federal Open Market Committee, the central bank body in charge of making adjustments to monetary policy.
His comments to CNBC came just hours after the Labor Department reported that inflation held at multiyear highs in July. Economists often consider rising prices a symptom of a healthy economy, but too much inflation can suggest that business is overheating.
The consumer price index, or CPI, rose 5.4% in July from a year earlier, in line with June’s figure and matching the largest jump since August 2008.
Kaplan said the current climb in prices is thanks to mismatch between pent-up consumer demand the result of Covid-19 vaccines and overwhelmed supply chains.
Chair Powell and other Fed officials have noted the recent acceleration in prices but believe that the inflation is “transitory” and that prices won’t climb at their current hot pace much longer.
This is breaking news. Please check back for updates.
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