Less than a week after Dalla Fed president and Former Goldman partner, Robert Kaplan sparked a selloff in markets when he pointed out the obvious saying that "we have real excesses int eh housing market" and said that rates should start rising in 2022, moments ago he sparked another dump in stocks when after several days of carefully worded statement by Fed officials, the non-voter expressed his desire for tapering to start soon, saying "the Fed should start the taper debate sooner rather than later."
While saying that he still supports Fed bond buying, the economy has improved faster than expected and as a result the Fed is likely to achieve its "substantial progress" metric faster than expected.
He then poured some more gasoline on the fire, saying that he doesn't want the Fed to be preemptive but doesn't want it to be late either (too late for that Robert - take a look at some of the latest inflation prints).
Kaplan then provoked some speculation that he is trying to undo the Fed's carefully worded party line - according to which QE is sainly and has no adverse side effects - by noting what everyone already knows, namely that there are side effects to Fed bond buying.
And the punchline:
- *KAPLAN:HAVEN'T DECIDED IF INFLATION IS PERSISTENT OR TRANSITORY
Well, Robert, here's a question: when is the last time you saw a company cut prices after it had just raised them (and as we showed on Tuesday, about 50 corporations have done just that in the past few weeks). And since you won't answer, we suggest you read the recent note from JPM's resident permabull Marko Kolanovic according to whom there is surging risk of "more persistent inflation", as in not temporary.
In response to Kaplan's hawkish comments stocks, which were already weak in early trading, slumped to session lows, forcing the Fed to engage in damage control again as today's remaining speakers offset Kaplan's remarks, while Yellen White House appearance tomorrow will likely be dedicated entirely to easing frayed investor nerves.