Fed's Kaplan rejects adding to QE, eyes eventual taper

  • 10/9/2020
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(Reuters) - Dallas Federal Reserve President Robert Kaplan said on Thursday he sees no need to expand the central bank’s asset purchases to bolster the economic recovery and instead signalled support for winding stimulus down when the coronavirus crisis eases. “I’d be skeptical about the benefits of doing more,” Kaplan told Bloomberg Radio. Long-term interest rates are already low, and trying to push them down further by adding to the $120 billion in bonds the Fed is already purchasing each month would do little to help the real economy. Kaplan added “the bond-buying needs to curtail, the Fed balance sheet growth needs to curtail,” when the crisis starts to lapse. “I don’t think it’s healthy for the markets to be addicted, or too reliant, on Fed presence ... it engenders fragilities.” That view may be unpopular with investors, who have come to see the Fed’s balance sheet as expanding without limits even as Congress and the White House have reached an impasse on fiscal stimulus. The Fed has bought about $3 trillion in bonds since the start of the crisis to help stabilize financial markets and boost the economy, and has pledged since June to continue to buy “at least” at its current pace for the coming months. Some investors see that language as signaling a readiness to expand its $7.1 trillion balance sheet at an even faster clip to further support the economy. It’s unclear how widely shared Kaplan’s desire to limit the expansion of bond buying is, but several of his colleagues have also addressed the issue lately. Kaplan dissented from the Fed’s September decision to keep interest rates at their current near-zero level until the economy reaches full employment, and inflation hits and looks set to rise about 2%, saying the Fed should have more flexibility. On Thursday, he said he expects the U.S. economy to shrink about 2.5% this year, which is among the most bullish projections by the Fed’s 17 policymakers.

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