“I think it would be wiser sooner rather than later to begin discussions about adjusting our purchases with a view to taking the foot off the accelerator gently, gradually, so we can avoid having to depress the brake down the road,” Kaplan said, referring to the Fed‘s purchases of Treasuries and mortgage-backed securities.
With historically high housing prices, he said in a virtual event held by Rice University, “at this stage, as it’s clear we are weathering the pandemic and making progress, I don’t think the housing market needs the level of support that the Fed is currently providing, and I would love to see sooner rather than later a discussion of the efficacy, for example, of those mortgage purchases.”
The Fed has said it will keep buying $120 billion in bonds each month until the economy makes “substantial further progress” towards its employment and inflation goals, a benchmark that Kaplan feels may soon be reached. Other Fed policymakers say they believe the economy is still far from reaching those goals, citing the 8 million or more Americans who had jobs before the pandemic and no longer do.
Kaplan has said he believes the labor market is actually tighter than the headline unemployment measure suggests, and on Thursday said monetary policy may be ill-equipped to bring it down on its own.
The U.S. unemployment rate was 6.1% in April, and a government report due Friday is expected to show it falling further.
Many of those who are out of work aren’t willing to return to jobs at their previous wages, Kaplan noted. The availability of an extra $300 weekly in pandemic unemployment benefits gives many workers the option of holding out for a better offer, he said, contributing to an imbalance between labor supply and demand.
“When unemployment benefits run out, we’ll find a balance,” he said.
This month about half of the U.S. states will end those benefits; the extra support will end for the other half in September.