Richard Fisher, president of the Federal Reserve Bank of Dallas, said he favors reducing the pace of central bank asset purchases as the U.S. economy gains momentum this year.
“As you approach your goals and things get better, you reduce purchases,” Fisher said in an interview with Kathleen Hays on Bloomberg Radio’s “The Hays Advantage.” “I wouldn’t go from Wild Turkey to cold turkey” in monetary stimulus. “I wouldn’t have favored spiking the punch bowl to the degree we have,” though it would be too abrupt to stop purchases all at once.
Fisher, who doesn’t vote on monetary policy this year, said he opposed the Federal Open Market Committee decision last week to continue purchasing securities at the rate of $85 billion a month. Policy makers have pushed the benchmark interest rate close to zero and expanded Fed assets to more than $3 trillion to spur growth and reduce unemployment.
Fisher said he agreed with St. Louis Fed President James Bullard, who said Feb. 1 he expects the U.S. economic expansion to pick up enough to allow the Fed to reduce purchases by the middle of the year. A reduction in purchases could be motivated by either an assessment that quantitative easing hasn’t been effective or that the economy gained momentum, the Dallas Fed leader said.
“I would not advocate just stopping the program,” he said. Slowing purchases “allows the market to adjust.”
Asked about how broad support is for a tapering approach, Fisher said he couldn’t speak for the FOMC and policy makers’ views are released with the regular distribution of meeting minutes.
Slowing purchases would represent a “compromise” between those who opposed purchases and those who favor stimulus, said David Milton Jones, chairman and chief executive officer of DMJ Advisors LLC in Denver, in a separate Bloomberg Radio interview.
“I would suspect that there is a significant number of FOMC members who are working in that direction as a compromise,” he said.
The Dallas Fed president said he wasn’t concerned about inflation for now, though he saw central bank stimulus contributing to “signs of excess” in markets such as junk bonds, credit default swaps and private equity. The Fed needs to be “on the balls of our feet, be on watch” for speculative excesses, he said.
Fisher praised Esther George, president of the Federal Reserve Bank of Kansas City, who dissented last week in her first vote on the central bank’s policy committee and has raised concern about the potential for asset-price bubbles. George said she was worried the record stimulus could pose the risk of financial instability and a surge in inflation.
“We are clearly seeing improvement in the economy,” Fisher said. An acceleration of growth to about 3 percent this year is possible, led by improvements in housing and employment, he said.
The Fed said last week that growth “paused,” following a Commerce Department report showing the economy shrank 0.1 percent at an annual rate in the fourth quarter. Fed officials said that growth will “proceed at a moderate pace and the unemployment rate will gradually decline.”
Minutes from the FOMC’s December meeting showed that policy makers debated when to end the monthly purchases of $45 billion in Treasuries and $40 billion in mortgage bonds. The central bank has pledged to continue the buying until the labor market improves “substantially.”
U.S. employers added 157,000 jobs in January, according to a Feb. 1 report. The unemployment rate climbed to 7.9 percent. The annual pace of auto sales also climbed in January, and new housing starts increased to 954,000 units at an annual rate in December, according to Commerce Department data. The measure is at its highest level since June 2008.
Fisher has been president of the Dallas Fed since 2005 and will be a voting member of the FOMC in 2014. In 2011, he dissented twice against efforts to push down long-term borrowing costs and keep the benchmark interest rate near zero for a prolonged period. He voted in favor of tighter policy five times in 2008.
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