Dallas Federal Reserve Chairman Robert Kaplan told CNBC on Tuesday that he is likely to push for an interest rate hike before the end of 2022.
Although he does not see inflation becoming an issue any time soon, the central bank official said he expects the economy to progress sufficiently to allow the Fed to begin withdrawing the high levels of accommodation it has provided since the Covid-19 pandemic.
Kaplan acknowledged that it was one of the “points” of 2022 revealed after last week’s meeting of the Federal Open Market Committee, which indicated an increase next year. The Fed, each quarter, launches a chart punctuated by the expectations of individual members regarding the direction in which rates will go in the next three years and beyond.
However, only three other 18-member FOMC officials agreed with Kaplan’s position, and the plot as a whole did not indicate any hiking until at least 2023.
“There were a few points that started to grow in 2022 and I’m one of those points, yes,” Kaplan told Squawk Box.
The FOMC’s economic forecasts do not list the names of individual members and it is unusual for committee members to reveal where their point is.
But Kaplan said he was eager for the Fed to begin normalizing policy, even though he did not think the day had come yet. Kaplan does not get a vote on the committee’s official policy and will not receive it until 2023, although he still has contributions to decisions and makes an individual forecast of economic conditions and the trajectory of interest rates.
Three of the 2022 points indicated an increase, while the fourth indicated two hikes. Kaplan did not indicate whether he expected two increases.
“The forecast has improved, my forecasts have improved significantly,” Kaplan said, adding that he expects a 6.5% increase in gross domestic product in 2021, according to the median commission estimate.
“That being 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 come true,” Kaplan added.
“As we make and as we make substantial progress in meeting our dual-mandate goals, I will first and foremost be a supporter of the beginning of the process of moving extraordinary monetary measures and achieving them faster than later.” said. “But I have to see results, not just a strong forecast.”
No inflation worries you
The Fed cut short-term benchmark lending rates to near zero in March last year and bought at least $ 120 billion in bonds each month.
Some areas of the markets were concerned that the Fed could maintain these measures for too long, especially given the high level of fiscal stimulus. Congress recently approved a $ 1.9 trillion incentive package and will soon begin work on an infrastructure program that could run up to $ 3 trillion.
These worries are focused on rising inflation expectations, as indicated by 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’s unique supply and demand problems will cause some price increases, and year-on-year comparisons will appear high, but only because inflation has slowed considerably in the early days of the crisis.
Inflation, Kaplan said, “is not just a single price increase. It’s a year-over-year rise in prices. I think the jury is very clear if we see that. It’s not my base 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 recovery, he said, and is expected to continue to rise to where the 10-year rate rises by about 2%.