Federal Reserve Bank of Dallas President Robert Kaplan said it isn’t time for the central bank to pull back on its support of the economy, but paring stimulus when it becomes clear the coronavirus pandemic is abating and the economy is meeting the Fed’s goals will be important to keep the recovery on track.
“When we’re in the middle of a crisis, we should be aggressively using our tools, so I agree with what we’re doing now in terms of asset purchases and stance of policy generally,” Mr. Kaplan said in a Wall Street Journal interview Tuesday. But he added, “I believe that as we’re making progress toward meeting our goals, I think it would be much healthier—the economy would be much healthier if we wean off these extraordinary measures.”
Mr. Kaplan declined to give a timeline for when those conditions might be met. The official remains upbeat about the economy and forecast 6.5% growth this year, with the jobless rate dropping to 4% this year from 6% currently and inflation ticking up to 2% to 2.1% from February’s 1.6% year-over-year gain.
Mr. Kaplan said he is heartened by the pace of vaccinations to combat Covid-19, but added that areas of concern remain in the U.S. and beyond, which is keeping a cloud of uncertainty over the recovery. “There’s reason to be optimistic about the future,” the official said, adding, “Having said that, I would also emphasize it is my view that we’re not out of the woods yet.”
Determining when the pandemic has largely passed is a conversation that will take place in conjunction with health policy experts. But once clarity on that question emerges, the Fed should trim its support to keep it commensurate with what the economy needs and to help rein in financial-market risk-taking when many measures of market valuation are already at high levels.
