Fed's Fisher Says Operation Twist Could Distort Market

Federal Reserve Bank of Dallas President Richard Fisher said the Fed’s expansion last week of its maturity extension program known as Operation Twist could interfere in the allocation of U.S. Treasury securities.

“There’s a limit to what we can do without distorting the marketplace,” Fisher said in a Fox Business Network interview today. “And that’s a subject of much debate” on the Federal Open Market Committee, said Fisher, who doesn’t vote on policy this year. “The real question is: Where does it start to interfere with the way that markets allocate securities?”

Richmond Fed President Jeffrey Lacker dissented last week from the Fed’s $267 billion extension of Operation Twist, asserting it will spur inflation and not significantly help the economy. Central bank officials on June 20 downgraded their forecasts for growth and employment while noting “significant downside risks” to the economy.

“My suspicion is Operation Twist is having a very minor effect” on the economy and “ the costs exceed the benefits,” Fisher said. “That’s why I personally didn’t support the program.”

Fisher, 63, has been president of the Dallas Fed since 2005. His district includes Texas, northern Louisiana and southern New Mexico.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net