Federal Reserve Bank of Dallas President Richard Fisher said the central bank should begin tapering its asset purchases because the money it has been pumping into the economy has probably reached the limits of usefulness.
“We have been the source of fuel for whatever recovery we have had, but I think there are limits,” Fisher told CNBC television in an interview today. “I think it’s time to really, perhaps, to taper this off. It’s not time to stop it.”
Fed policy makers 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 that buying $85 billion in assets each month could pump up asset-price bubbles. Chairman Ben S. Bernanke told Congress this week that Fed policies are promoting growth.
“We’re not going to go from wild turkey to cold turkey, but I do think we probably have run up to the limits of the efficacy of what we’re doing,” Fisher told CNBC.
The Federal Open Market Committee in January affirmed its plan to continue buying $40 billion per month in mortgage bonds and $45 billion in Treasuries, though several participants said the central bank should be prepared to vary the pace, meeting minutes showed.
Fisher, who does not vote on monetary policy this year, yesterday in a speech in New York said the Fed should scale back the buying to avoid over-stimulating the housing market as it rebounds. He supports tapering the purchases so that markets can adjust gradually.
“You don’t want to pull the legs out from underneath the table,” he said. “I think it’s good for us to at least socialize the concept, we may taper off, not quit entirely.”
Fisher said we’re in a “slow-growth” economy that is improving, though it’s not moving toward job creation quickly enough.
U.S. unemployment stood at 7.9 percent in February, having ranged between 7.8 percent and 8.3 percent for the past year.
“It’s because of the uncertainty and the fog that’s been created by fiscal authorities,” Fisher said. “People don’t know what their tax bill is going to be, what their cost factors are going to be, how government spending’s containment is going to affect their customers or them directly.”
The FOMC hasn’t specified an end date for its bond purchases, saying they will continue until the labor market improves “substantially.” Policy makers have pledged to keep the main interest rate near zero as long as joblessness is above 6.5 percent and inflation is projected to be no more than 2.5 percent.
Federal Reserve Bank of St. Louis President James Bullard, speaking in New York on Feb. 21, projected that U.S. unemployment may drop to 6.5 percent by the middle of next year. Like Fisher, Bullard has spoken out in favor of adjusting asset purchases based on changes to the economic outlook. Bullard is a voting member of the FOMC this year.
During the CNBC interview, Fisher also said he can’t yet predict the economic impacts of the so-called sequestration, $85 billion in federal spending cuts this year slated to take hold tomorrow.
“It depends on how it’s handled by the political authorities,” he said.