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Fed's Kaplan says bracing for difficult months ahead

FILE PHOTO: Dallas Federal Reserve Bank President Robert Kaplan speaks at the Commonwealth Club in San Francisco, U.S., October 11, 2019. REUTERS/Ann Saphir

(Reuters) - Dallas Federal Reserve Bank President Robert Kaplan on Monday said he expects strong economic growth in the second half of next year once newly developed COVID-19 vaccines get rolled out widely, but with cases surging now he sees a “very difficult” next three to six months.

“If we can see the resurgence moderate, I think you’ll continue to see growth in the fourth quarter, and you might even see growth in the first quarter of next year, but right now, the trends at least in the virus don’t look like they are moderating,” Kaplan told Reuters in an interview. “So we’re bracing ourselves here.”

Fed policymakers are gearing up for their next policy-setting meeting, in mid-December, as hospitalizations set records and some communities are re-imposing restrictions to bring rampant COVID-19 spread under control.

Meanwhile, Congress has made little progress on passing a fiscal aid package in the waning weeks of the Trump administration, even as households deplete savings from aid distributed early on in the crisis.

Investors are watching whether the central bank will give new guidance on how long it will continue to buy bonds, and whether and under what circumstances it might shift to purchasing longer-term securities or even add to its current $120 billion-a-month pace of purchases.

Kaplan said he expects the Fed to continue to discuss such guidance, he’s open-minded about when to deliver it: “We are going to have to figure out whether it’s in the December meeting or a future meeting,” he said.

Reporting by Ann Saphir; Editing by Aurora Ellis

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