The outgoing Fed governor said that "it was possible" the central bank's fiscal intervention over the past two years, low interest rates, has boosted demand to levels that producers can't currently supply.
Quarles however also said that the Fed was justified in holding off on rate increases due to its belief at the time that inflation was being driven by "idiosyncratic price increases related to the reopening economy," according to the Wall Street Journal.
Quarles, who is leaving the Fed's Board of Governors at the end of the month, also took a dovish tone on stablecoins, or digital currencies that have their value pegged to a traditional asset like the dollar.
He urged the Fed to show "reasoned constraint" in monitoring the cryptocurrency, sayinf banks should be allowed to engage with stablecoins once concerns about transparency, stability and consumer protection are ameliorated.
"It is clear that there is a strong demand for these assets among bank customers, and well-regulated banks should be allowed to engage in activities regarding these assets," he said in a virtual appearance at an American Enterprise Institute event in Washington, Reuters reported.
In November, the U.S. Treasury Department urged Congress to regulate stablecoin issuers, or wallets, like banks due to "the rapid growth of stablecoins."
A basket of stablecoins that includes some of the big players like tether, USD coin and inance USD have seen their market cap jump 500% to $127 billion over the past 12 months.