MNI INTERVIEW: Fed's Kaplan Says Covid Flare May Slow Recovery

--Wants More Clarity Before Looking at Guidance, Curve Control

By Evan Ryser

     WASHINGTON (MNI) - Increased spread of Covid-19 in the U.S. is likely

slowing the economic rebound, Dallas Fed President Robert Kaplan told MNI

Tuesday, adding he's not ready to embrace expanded tools like forward guidance

or yield curve control. 

     "With the resurgence in cases and particularly hospitalizations it feels to

us growth is slowing," he said in an interview. 

     "Looking at mobility data and having a wide range of conversations every

day with businesses, it feels to me that growth is slowing from the pace we were

rebounding the first month-and-a-half after re-opening," Kaplan said.

     "The next few weeks are very critical," he said. For now he's keeping 2020

projections for GDP to shrink by 4.5% to 5% and for unemployment of 8% to 9% at

year-end. Slack in the economy is also boosting disinflationary pressures,

Kaplan said, even as supply chain issues in meat and food industries have caused

a rise in those prices.

     Kaplan wants more clarity on the outlook before future discussions on

adding specific forward guidance to the array of tools already propping up

markets and the economy. "I want to turn over a few more cards and see how the

economy unfolds before being prepared to say more about that," he said on

guidance. 

     It's better to have guidance that tackles both the Fed's "dual-mandate

objectives" around inflation and unemployment, he said. "That would always be my

preference, and that means looking to both growth and inflation, and broadly the

circumstances."

     --AVOID CURVE CONTROL

     Kaplan "would not be an advocate" of yield curve control or targets. "I

would be concerned about some of the impacts that it could have on distorting

the yield curve, distorting the pricing mechanisms of the debt markets," Kaplan

said, adding he would keep an open mind.

     The Dallas Fed leader, an FOMC voter this year, remains optimistic the U.S.

can deal with the resurgence of the virus when mask-wearing, testing, social

distancing, and contact tracing are better observed. Texas was one of the first

states to re-open and reported more than 10,000 additional Covid-19 cases

Tuesday, surpassing the previous record of about 8,300 cases on July 4.

     "The duration of this crisis is going to be maybe longer than some people

expect," he said. "This is unlikely to be a situation that gets resolved

quickly."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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