Dallas Fed President Robert Kaplan said the Fed's tapering of asset purchases-which he hopes will start "soon"-will go more smoothly because investors already know the move is being discussed.
"I want the market to be aware of this, and I think our debate at FOMC-some of which is public-is a good thing," Kaplan said in an interview on Wednesday. "people have noticed that these adjustments are coming and the only question is when."
The Kaplan said the Fed had learned some lessons from 2013, when it announced a slowdown in its purchases of Treasuries and mortgage-backed securities for the first time in the wake of the global financial crisis. The news triggered a sharp shock in financial markets, with investors selling risky assets and chasing safe-haven bonds during the so-called "downsizing storm".
Since last year, the Fed has been buying $80 billion of Treasuries and $40 billion of MBS, a month to support the economy during the outbreak. Chairman Jerome Powell said earlier this month that discussions on code reduction are under way and will continue at future FOMC meetings.
Kaplan says asset purchases are useful at a time when the epidemic has led to millions of job losses and business closures.
"these purchases are very good at stimulating demand, but right now we have plenty of demand," Kaplan said. "our problem is supply, and when we have a supply problem, these asset purchases are not very effective."