Fisher Says Fed Could Set Limits on Quantitative Easing

Federal Reserve Bank of Dallas President Richard Fisher
Federal Reserve Bank of Dallas President Richard Fisher said there are lessons to be drawn from Germany’s experience of hyperinflation during the 1920s. Photographer: Scott Eells/Bloomberg

Federal Reserve Bank of Dallas President Richard Fisher said he advocates putting limits on U.S. quantitative easing.

The Fed could announce “a limit as to how much we are going to acquire of treasuries and mortgage-backed securities, say up to a limit of X, up to a point where our balance sheet reaches that,” Fisher said today in Berlin. “It is my personal preference to do it sooner than later, perhaps at the next meeting.”

Fed officials plan to meet Dec. 11-12 to assess whether record accommodation is fueling economic growth and reducing 7.9 percent unemployment, and to debate whether to extend the Operation Twist stimulus plan, which expires next month. Fisher, who doesn’t vote on policy this year, has been among the most vocal Fed officials against more easing.

Fisher said there are lessons to be drawn from Germany’s experience of hyperinflation during the 1920s. While today’s situation is different and he wasn’t suggesting accommodative monetary policies would lead to inflation, Fisher said they can’t be left in place forever.

“There is no such thing as QE infinity,” he said. “QE infinity gets you into trouble.”

The U.S. central bank has held its benchmark interest rate near zero since December 2008, and has turned to unconventional measures to spur the recovery, including the purchase of Treasuries and mortgage-backed securities.

Stimulus Programs

A number of policy makers said the Fed may need to expand its monthly bond purchases after the expiration of Operation Twist, in which the Fed swaps $45 billion of short-term Treasuries each month for longer-term debt, according to minutes of their October meeting. The Fed on Oct. 24 affirmed a stimulus plan to keep buying $40 billion in mortgage bonds a month.

“I was not in favor of operation twist from the beginning,” Fisher said. “I was in favor of the first tranche of mortgage-backed securities. But now it is enough.”

Fisher said unemployment is the biggest problem that the U.S. is facing and there may be a need to “announce an employment target, just as we have announced a long-term inflation target.”

Still, “this may be more difficult than it sounds because monetary policy is not as much of a controlling variable for employment as it is for price stability,” he said.

Fiscal Policy

Fisher has previously said there’s little more monetary policy can do to spur job growth, arguing that businesses won’t step up hiring until the government clarifies fiscal policy issues such as taxes. Some $607 billion in spending cuts and tax increases are scheduled to take effect on Jan. 1 unless Congress acts.

Fisher said today the Fed has done its job and now there’s a need for “the fiscal side to kick in and do its job.”

Referring to the re-elected administration of President Barack Obama, Fisher said: “I would put a U.S./Europe free-trade agreement on the top of the to-do list.”

The Fed is concerned about the economic slowdown in China and Europe, he said.


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