MNI POLICY: Fed’s Kaplan Says More QE May Distort Markets

Dallas Fed President Robert Kaplan said Friday keeping interest rates around zero well into 2022 or 2023 should be enough monetary policy support, but would reassess opposition to more QE if long yields surged.

"If you got a dramatic steepening...or a rise in rates at the longer end of the [yield] curve, that would be something that I would look at," he said. "But part of my thinking is the fact that the 10-year is already relatively at historically low levels and I don't know that it would be worth doing more on asset purchases to make it lower," he said.

Asset purchases "can distort markets," and "my concern is that it may do more to stimulate risk assets," he said, adding officials will have more discussions in the weeks and months ahead.

The Fed is buying USD120 billion of Treasuries and mortgage-backed securities each month to stabilize financial markets amid the coronavirus pandemic and to boost the economy by pushing down borrowing costs.

"The fed funds rate has a lot of potency as it relates to easing financial conditions, helping economic conditions, and helping us drive toward our full employment goal," FOMC member Kaplan said in a Q&A webinar with The Wall Street Journal.

Kaplan also clarified previous remarks he would be willing to see inflation "moderately above" 2%."That means 2.25% or maybe a little bit more. For me, it doesn't mean 2.5% to 3%." He will also be keeping an eye on inflation's rate of change and suggested the Fed should step in if prices were to "spiral."