Dallas Federal Reserve President Robert Kaplan called potential housing market excesses and other signs of inflation as an indication that the central bank should slowly begin phasing out its asset-buying program.
As long as the Fed buys at least $ 120 billion in bonds each month, the total of which includes $ 40 billion in mortgage-backed securities, some officials said it was time to at least start discussing weakening of historically aggressive investments in the fixed income securities market.
In an interview with CNBC on Thursday afternoon, Kaplan reiterated his call for a gradual policy change.
“At this stage, unlike a year ago, these mortgage purchases, for example, may have some unintended consequences and side effects that I think we need to weigh in terms of efficiency,” he said during his speech. “Closing bell“discussion. So I think some restraint and moderation as we move towards surviving this pandemic, I think, would be helpful in mitigating some of these excesses and imbalances. ”
Kaplan is not a voting member of the governing Federal Open Market Committee, but he participates in its decisions. So far, only a handful of Fed officials have spoken out in favor of cutting asset purchases. San Francisco Fed President Mary Daly, who votes, told CNBC earlier this week that she thinks politics is great.
However, the pressure on the Fed is growing as inflation rises.
Although home sales fell in March, prices have risen sharply as inventory cuts and intense competition drive up costs. Kaplan noted that now home buyers have to compete with investors, even for single-family homes.
With mortgage rates still low, Kaplan said, the Fed can afford to pull back and help iron out imbalances.
“I think that sooner rather than later, it would be wise to start talking about curbing some of these purchases that we made during the crisis. I think maybe the effectiveness of these purchases versus the side effects, I think the balance is changing as we “we get out of the crisis and make progress,” he said.
Kaplan cited “cross-currents” in various parts of the business world, which indicate that inflationary pressures may be more persistent than many of his colleagues pointed out… These include the need for higher capital expenditures in several sectors, as well as government spending on infrastructure and a shift to more energy efficient technologies that will change the dynamics of supply and demand.
“Based on this pandemic“I think we have paradigm shifts,” he said. – There is no textbook for that. You don’t want to be proactive enough to stifle recovery. On the other hand, you don’t want to be late enough to be off the curve. “
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