Federal Reserve Bank of Dallas President Richard Fisher said the Fed should scale back $85 billion in monthly bond buying, warning against channeling too much stimulus into a housing market that’s already rebounding.
“The fact that the housing-market gears have now begun to mesh is why I believe we are running the risk of overkill by continuing our mortgage-backed securities purchase program at the current pace,” Fisher said in the text of remarks for a speech Wednesday in New York. “It would be best to taper the dose of QE so that markets can adjust gradually to the eventual removal of this treatment.”
U.S. central bankers are debating how long to pursue their third round of large-scale bond purchases, with some citing signs of economic vigor while others voice concern the Fed is pumping up asset price bubbles. Chairman Ben S. Bernanke defended record stimulus to Congress Tuesday and Wednesday, saying accommodation has helped reduce borrowing costs and spur growth.
“Now that we have them in place, and the fixed-income and stock markets are hooked on the monetary Ritalin that we have dispensed in ever-larger doses, it would, in my opinion, do great harm to force a sudden withdrawal,” Fisher said at an event hosted by Columbia University.
The Federal Open Market Committee last month affirmed its plan to keep buying $40 billion per month in mortgage bonds and $45 billion in Treasuries. Several participants said the central bank should be ready to vary the pace of the purchases as it monitors the state of the economy and weighs the program’s benefits and costs, minutes of that meeting showed.
Housing is among the parts of the U.S. economy that have benefited from Fed accommodation, Bernanke said in testimony to the House Financial Services Committee Wednesday.
“We do not see the potential costs of the increased risk- taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation,” he said.
Still, Fisher, who does not vote on monetary policy this year, said the Fed’s “hyper-accommodative” policies don’t equally distribute gains. The nation’s biggest banks and wealthiest investors have benefited, while savers and retirees have been “waylaid on the sidelines of the zero bound,” Fisher said. Also, smaller banks have suffered with lower interest margins, he said.
“Rather than achieve the intended theoretical effect, I believe the policy of super-abundant money at costs deviating substantially from normal equilibrium levels may ultimately prove to be counterproductive,” Fisher said. Employers “will tell you that despite access to cheap and abundant capital, they are hesitant to make long-term commitments, including hiring significant numbers of permanent workers.”
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