Robert Kaplan, president of the Dallas Federal Reserve, cited possible excesses in the real estate market and other signs of inflation as an indication that the central bank should slowly begin withdrawing its asset purchase program.
With the Fed still buying at least $ 120 billion worth of bonds every month, for a total of $ 40 billion in mortgage-backed securities, several officials have said it is time to at least start easing the historically aggressive injections to discuss in the bond market.
In an interview with CNBC on Thursday afternoon, Kaplan reiterated his call for a gradual change in policy.
“At this stage, unlike a year ago, for example, these mortgage purchases could have some unintended consequences and side effects that I believe we need to weigh against effectiveness,” he said during a live Closing Bell discussion. “So I think that some restraint and moderation as we move closer to tackling this pandemic would be useful in mitigating some of these excesses and imbalances.”
Kaplan is not a voting member of the Federal Open Market Policy Committee, but he does influence its decisions. So far, only a handful of Fed officials have spoken out in favor of reducing asset purchases. San Francisco Fed President Mary Daly, who is voting, told CNBC earlier this week that she felt the policy was okay.
However, pressure on the Fed has increased as inflation rises.
Although home sales declined in March, prices accelerated sharply as falling inventories and fierce competition drove up values. Kaplan noted that homebuyers now face investors in single-family homes as well.
With mortgage rates still low, the Fed can now afford to pull back and redress imbalances.
“Sooner than later, I think it would be wise to talk about moderating some of these purchases we made during the crisis. I think the effectiveness of these purchases may change compared to the side effects. I think that the balance changes when we ’emerge from the crisis and make progress,’ he said.
Kaplan cited “cross-currents” in various parts of the business world, indicating that inflationary pressures may be more persistent than many of his colleagues have indicated. These include the need for greater investment in various industries, as well as spending on government infrastructure and moving to more energy-efficient technologies that will change the dynamics of supply and demand.
“We have some paradigm shifts after this pandemic,” he said. “There’s no textbook for it. You don’t want to be preventative enough to stall recovery. On the other hand, you don’t want to be late enough to be behind the curve.”
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