We know where Robert Kaplan stands.
In remarks to CNBC Tuesday, Kaplan said he’s “more aggressive” than some of his colleagues when it comes to the potential timeline on rolling back stimulus measures as the economy improves. He also decided it would be a good idea to deliver a sell-side-style 10-year yield forecast. Kaplan sees benchmark US yields rising as high as 2%.
Asked by the network’s Steve Liesman to reconcile robust growth projections with the persistence of ultra-accommodative policy, Kaplan reiterated that a forecast is just that — a forecast. “I for one am going to be an advocate for beginning the process of removing some of these extraordinary monetary measures and doing it sooner rather than later, but I need to see outcomes,” Kaplan said.
As an aside, Liesman is just posturing for the sake of television. Or at least I hope he is. Because if he’s being sincere, then he really doesn’t understand what outcome-based forward guidance means.
Liesman is now in the habit of pretending to be incapable of processing Fed officials’ reaction function. He’s been told, by Jerome Powell and now by Kaplan, that it isn’t necessary to reconcile forecasts with policy, because policy is contingent on outcomes, not forecasts.
On Tuesday, Liesman claimed “the economic facts have changed,” but they haven’t. How could they? We’re not in 2022 yet, let alone 2023. We don’t know what the “economic facts” are for those years yet.
Simply put: Facts aren’t predictions. And predictions aren’t facts. A prediction of bad weather isn’t the same as rain. Liesman seemingly can’t grasp that distinction which, I imagine, makes contending with the weather in New York and New Jersey particularly confusing for Steve.
All humor aside, Liesman also asked Kaplan about inflation, and specifically whether he “shares the inflation concerns” being voiced by “some in the markets.”
Kaplan said it’s important to be “vigilant” and predicted a “surge in prices this year” due to supply chain disruptions and pandemic distortions, but largely stuck to the party line, where that means suggesting that the odds of a sustained, problematic jump in prices are low. “I do believe that a lot of the supply/demand issues will get worked out over the next year,” he remarked. “Inflation in 2022 will settle down a bit and we’ll still be running at or a little bit above 2%.”
Pressed on whether the Fed should step in to tamp down long-end yields, Kaplan said that “would not be something that I would support.”
For Kaplan, it’s not advisable to “do more to distort the pricing of the Treasury curve.”
“I don’t see why, as we recover, the 10-year rate won’t back up further,” he mused. “I think that would be a healthy signal, not an alarming signal. And not one that I would be an advocate of getting in the way of.”