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Dallas Federal Reserve Bank President Robert Kaplan speaks during an interview in his office at the bank's headquarters in Dallas, Texas, U.S. on Jan. 9, 2020.

Ann Saphir/Reuters

Dallas Federal Reserve president Robert Kaplan said on Tuesday that his outlook for the U.S. economy has improved meaningfully and he is among the policy makers expecting the central bank could start raising rates as soon as next year.

As more people are vaccinated against the coronavirus and the economy continues to improve with the help of generous fiscal stimulus, including a US$1.9-trillion aid package signed into law this month, Mr. Kaplan said he would be an early advocate for scaling back monetary support.

“I have a forecast for removing accommodation that’s more aggressive than the median” Fed official forecast, Mr. Kaplan said during an interview with CNBC.

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At last week’s policy-setting meeting, Fed officials agreed to keep interest rates steady near zero and to continue purchasing US$120-billion a month in bonds until there is “substantial further progress” toward the central bank’s goals for maximum employment and inflation.

Mr. Kaplan said that he now expects the economy to grow by 6.5 per cent in 2021 and for the unemployment rate to approach 4 per cent by the end of this year. He said he expects year-over-year inflation of between 2.25 per cent and 2.5 per cent in 2021.

In a section of their economic projections known as the “dot plot,” four Fed officials said they expect the central bank may need to raise rates next year and seven said they expect at least one rate hike by the end of 2023.

Mr. Kaplan said he is one of the four “dots” expecting rates to start rising in 2022. However, he said he would need to see those improvements materialize in the economy before he supports scaling back Fed support.

“We’re just not there yet,” said Mr. Kaplan, adding that the Fed would need to first reduce its asset purchases before raising interest rates. “It’s an outcome-based test.”

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