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.