Fed’s Fisher Says Bond Yields Rising as Investors See QE Waning

Federal Reserve Bank of Dallas President Richard Fisher, one of the Fed’s most vocal critics of bond purchases by the central bank, said government bond yields are rising amid recognition the buying will eventually end.

The Fed should taper purchases next month if economic reports remain favorable, Fisher said, adding employment is picking up and “the housing market has turned.” U.S. companies “are lean and mean and ready to go” with stronger balance sheets, Fisher said today in a television interview with Fox Business Network. He will vote on monetary policy next year.

“The market has come to realize that there’s no QE infinity,” Fisher said, referring to asset purchases known as quantitative easing. “The economy is improving. We’re seeing better numbers in the economy. You would expect to see a steepening of the yield curve.”

Treasury 10-year yields touched a two-year high of 2.86 percent (USGG10YR) today on speculation the Federal Open Market Committee will slow its large-scale asset purchases next month. Policy makers are weighing when to begin reducing monthly buying of $85 billion in bonds, which they have pledged to maintain until the job market improves substantially.

U.S. 10-year note yields rose six basis points, or 0.06 percentage point, to 2.83 percent as of 5:01 p.m. in New York. The Standard & Poor’s 500 Index fell 0.3 percent to 1,655.83 today to complete its biggest weekly decline since June.

“We have artificially suppressed rates,” Fisher said today. “This cannot go on forever.”

QE Taper

The FOMC will probably vote at its Sept. 17-18 meeting to taper the unprecedented stimulus program, according to 65 percent of economists surveyed by Bloomberg Aug. 9-13. The first step may be to taper monthly purchases by $10 billion to a $75 billion pace, according to the median estimate in the survey of 48 economists. They said buying will probably end by mid-2014.

Fisher and three other officials with varied voting records on monetary stimulus indicated greater willingness last week to begin tapering purchases, citing confidence the economy is accelerating. Chicago Fed President Charles Evans, a voting member of the policy making FOMC this year who dissented twice in 2011 in favor of easier policy, said he wouldn’t rule out a reduction at the Sept. 17-18 meeting.

The pace of job creation has slowed. Employers added 162,000 workers in July, the least in four months, while the jobless rate dropped to a four-year low 7.4 percent from 7.6 percent as more Americans left the labor force. Hourly earnings fell for the first time since October.

Second Quarter

Gross domestic product rose at a 1.7 percent annualized rate in the second quarter, after a 1.1 percent gain in the first, Commerce Department data show.

By buying Treasuries and mortgage-backed securities, the Fed has pumped up its balance sheet to a record $3.65 trillion.

Fisher said in January that, with Fed assets growing, the potential costs of the asset purchases were outweighing the benefits. In March he said the purchases should be slowed as the housing market is “quite strong.”

Fisher, 64, has been president of the Dallas Fed since 2005. His district includes Texas, northern Louisiana and southern New Mexico.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.