Fisher Favors Steady QE Tapering to Zero by End of October

Federal Reserve Bank of Dallas President Richard Fisher said he favors a steady tapering in bond buying by the Fed, with a $15 billion cut to zero in October.

“Barring some destabilizing development in the real economy that comes out of left field, I will continue to vote for the pace of reduction we have undertaken, reducing by $10 billion per meeting our purchases and eliminating them entirely” at the Oct. 28-29 meeting, Fisher said today in a speech in New Orleans. He votes on monetary policy this year.

Fed Chair Janet Yellen said May 7 that, with inflation and employment far from the central bank’s goals, “a high degree of monetary accommodation remains warranted.” Policy makers haven’t indicated whether their plans for tapering $45 billion in monthly bond buying would mean announcing an end to purchases in October or a final $5 billion reduction in December.

The reduction by the Fed last month was “in recognition that the economy is improving and acknowledging that we have generated massive amounts of excess reserves among depository institutions,” Fisher said to the Louisiana Bankers Association. “There is abundant liquidity to finance economic expansion.”

Fed officials on April 30 announced a trim to bond buying for the fourth consecutive meeting, saying the economy has strengthened after harsh winter weather slowed growth to a 0.1 percent annual pace in the first quarter. Yellen said in May 7 testimony to the Joint Economic Committee that the central bank will probably end bond buying in the fall if the labor market continues to improve.

GDP Growth

“I expect we are going to have a pretty dramatic snapback this quarter” in economic growth, Fisher told reporters after his speech, predicting increased demand for autos and housing.

After the second quarter, the economy will shift into a “glide path” of about 2.5 percent to 3 percent growth in gross domestic product, he said.

“There are a lot of mixed signals in the housing market,” Fisher said, including shortages of skilled labor and property available to homebuilders.

GDP will expand at a 3.5 percent annualized rate this quarter, 3 percent in the third quarter and 3.1 percent in the final quarter of this year, according to the median of economist estimates compiled by Bloomberg.

The Dallas Fed chief also endorsed Yellen’s support for appointment of a community banker to the Fed board.

‘Largely Theoretical’

“It is very important we find a banker” who would bring a practical viewpoint to discussions with “largely theoretical” Ph.D. economists on the Federal Open Market Committee, he said.

Fisher criticized the congressional overhaul of regulation under the Dodd-Frank Act, saying it created especially burdensome rules for community banks while not ensuring big banks can be allowed to fail without threating the financial system.

“The big banks have a greater share of the deposit market than ever, are coming into our communities and regions to lend money on terms and at prices that any banker with a memory cell knows from experience usually end in tears, and are putting independent bankers in a precarious position,” Fisher said.

“And as to Dodd-Frank, I am skeptical that the bureaucracy and rules and regulations this massive legislative initiative has created, even with the careful execution by the Fed, will vanquish too-big-to-fail -- the law’s very intention as stated in its preamble,” he said.

Fisher, a former money manager and deputy U.S. trade representative, has been president of the Dallas Fed since 2005.

In 2011, he dissented twice against efforts to push down long-term borrowing costs and keep the benchmark interest rate near zero for a prolonged period. He voted in favor of tighter policy five times in 2008. His district includes Texas, northern Louisiana and southern New Mexico.

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