Fed's Kaplan says next couple of months will be challenging because of virus resurgence

Reuters reported that Dallas Federal Reserve President Robert Kaplan has explained that despite what he expects to be a challenging next few months because of surging coronavirus cases, the US economy probably isn't going to shrink this quarter.

He said, instead, that it will deliver 5% growth for the year as the whole.

He expects Unemployment to drop to 4.5% or 4.75% by the end of the year, from 6.7% now.

Kaplan is speaking in a virtual town hall event, explaining that the next couple of months will be challenging because of virus resurgence.

Kaplan says GDP growth in first quarter will probably be positive;

Says expects 2021 GDP to grow 5%;

Says will be working our way back to normal in 2021;

Says expects unemployment to fall to 4.5 to 4.75% by end of year;

Says it is possible if there is more fiscal stimulus there will be revisions to outlook;

Says he is hopeful that later this year will meet "substantial progress" bar for tapering QE;

Says would be strongly against use of negative interest rates in the US.

Market implications

We have seen an aggressive rise in Treasury yields with US market-implied breakeven long-run inflation expectations have been trending upwards to currently sit at 2.1%.

This is sparking speculation that inflation might be returning.

At the same time, the US dollar has started to correct from within a monthly demand area.