Tags: Fisher | QE | taper | Fed

Fed's Fisher: QE 'Can't Go On Forever'

Tuesday, 12 Nov 2013 10:01 AM

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All good things must come to an end. And so it is with the Federal Reserve's stimulus program, says Richard Fisher, president of the Federal Reserve Bank of Dallas.

"We've changed and impacted the markets because of our intervention and I understand there's sensitivity, but markets should also bear in mind that this program cannot go on forever," Fisher told CNBC.

"The balance sheet is $4 trillion and there are limits to what the Federal Reserve can do."

Editor’s Note:
New Video Exposes a ‘Great Retirement Heist’

But Fisher, who becomes a voting member of the Fed's policy-setting committee next year, said the Fed could scale back its quantitative easing (QE), not stop it altogether. The central bank has been buying $85 billion of Treasury and mortgage bonds a month to drive down long-term interest rates and rejuvenate the economy.

"Every bond we buy comes back to us in terms of excess reserves," Fisher explained.

"Our balance sheet has become bloated and at some point, we will have to taper back on the pace of purchases, but that doesn't mean we'll stop. We'll have less accommodation as opposed to the current $85 billion a month."

The Fed has been criticized for doing a poor job communicating its plans for tapering QE. Many market players expected the Fed to start reducing QE in September and were surprised when the central bank maintained its level of purchases. The Fed's communications with markets could have been better, Fisher conceded.

The Fed has said its tapering schedule depends on economic variables, such as the unemployment rate, and is not based on calendar dates.

"We could be in our own little monetary trap here because being data dependent doesn't really define for the marketplace where we will end this program or begin to taper back the current rate of purchases," he said.

A tapering decision at the Fed's December meeting should not be ruled out, Atlanta Fed President Dennis Lockhart told reporters in Oxford, Miss., Bloomberg reported.

"I would not take off the table at least consideration at that time,” Lockhart noted. "The question of changing the mix of accommodative tools ought to be on the table at every meeting for the foreseeable future."

The economy added 204,000 jobs in October. Lockhart called that "an encouraging number," but said he didn't want to base conclusions on a single jobs report, according to Bloomberg.

The median estimate of economists surveyed by Bloomberg last month forecasts that the Fed won't start tapering until March.

Editor’s Note: New Video Exposes a ‘Great Retirement Heist’

Related Stories:

Goldman Sachs Among Crowd Forecasting Fed Taper in March

Nuveen's Bob Doll: Fed Tapering Decision Represents Win-Win for Stock Investors

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