B/S unwind should start some time this year

He adds that:

  • B/S unwind won't involve asset sales (the Fed simply will not repurchase a par amount of securities that mature).
  • He expects that the B/S unwind will begin this year
  • Technology is reducing company pricing power
  • Need to remove some amount of accommodation, then be patient to wait to see signs of inflation.
  • Eventually there will be upward price pressures
  • Believes recent weak inflation will turn out to be transitory. Wants to see more evidence though
  • "Can't wait" for signs of over-heating inflation
  • Yield curve is something that worries me.
  • Need to be careful about raising rates further if 10 year treasury yield stays where it is
  • Watching China as it navigates multi-year transition.

Kaplan is a voting member on the FOMC this year.