The Fed should withdraw the stimulus when the pandemic is over: Kaplan

The Chairman of the Federal Reserve Board of Dallas, Robert Kaplan, said that the Federal Reserve Board of the United States (US) should start withdrawing its monetary support shortly after the end of the pandemic, a moment that could initiate robust growth for the US economy.

Kaplan said the central bank should start reducing its asset purchases from the current pace of $ 120 billion per month, though he avoided disclosing details of specific securities trading that should be suspended before the Fed decides to raise interest rates.

Kaplan said during a hypothetical interview: “I think pulling monetary stimulus should come first… I think (withdrawal) has to be pretty much complete before dealing with the federal funds rate, although I would like to maintain some flexibility in that”. Forum organized by UBS.

The agency said that Federal Reserve support should remain in place until the epidemic ends, adding that the crisis could lead to economic panic, so some people may have difficulty returning to work.

Fed governors agreed last month to leave the interest rate unchanged – near zero – and continue to buy $ 120 billion in bonds per month until “we see substantial additional progress” on the central bank’s mandates on inflation and full employment.

Kaplan said that the US economy may see strong growth after overcoming the epidemic, but that vaccine deployment will need to meet the new variants of the spreading virus.

He said the world’s largest economy could expand 6.5 percent this year and the unemployment rate could approach 4 percent. “Once we get out of the crisis, we will have very strong growth.”