MNI BRIEF: Fed Kaplan Ups Inflation Forecast, Lowers Q3 Growth

Dallas Fed President Robert Kaplan Wednesday said he has upped his forecast for inflation, repeating he would like to see the central bank announce at its September meeting that it will begin tightening its policy reins in October.

Kaplan said he increased his 2021 headline PCE inflation forecast to 4.0% from 3.9%, with risks to the upside, and 2022 inflation to 2.6% from 2.5% previously. The Dallas Fed chief said there are near-term risks to the economic recovery from Delta, revising lower his Q3 GDP view to 3.5% but expects there will be improvement in Q4 with GDP at 5% to 6%.

"The economy is continuing to recover but it is fits and starts, and we're in the middle of one of those fits right now," he said in a virtual town hall hosted by the Dallas Fed, adding that there is still "substantial" fiscal stimulus left to be disbursed. "My own view is there is still quite a bit of tailwind." Kaplan said he would like for the central bank to begin tapering asset purchases in October, and again repeated that QE should not be seen as a signal on short-term interest rate policy.