Fed's Fisher: protectionism equals economic death

WASHINGTON (Reuters) - Dallas Federal Reserve President Richard Fisher warned on Monday against "Buy America" provisions in a proposed fiscal stimulus law and said it could lead to devastating protectionism.

"Protectionism is the crack cocaine of economics," Fisher told C-Span television in an interview for its "Washington Journal" program.

"It provides an immediate high that leads to economic death. We cannot afford to go down that route," said Fisher, who is not a voting member of the Fed's policy-setting committee this year.

President Barack Obama has proposed an $825 billion government spending package to end the country's yearlong recession, which is being debated by U.S. lawmakers.

In addition to avoiding language that will antagonize trade partners, Fisher also urged Congress to balance the immediate need to stimulate growth with the long-term consequences of piling on debt that could be a drag for years to come.

The Fed has cut interest rates almost to zero and taken other unorthodox steps to ease conditions in key credit markets and encourage borrowing and consumption.

To achieve this, it has pumped hundreds of billions of dollars into the financial system, more than doubling its balance sheet in the process, to almost $2 trillion.

Fisher said he supported the Fed's aggressive action but stressed it was crucial that the U.S. central bank have an exit strategy to prevent this massive build-up in liquidity from fueling inflation once U.S. growth recovers.

"The job of the Federal Reserve is to ... maintain price stability while we engender growth and employment in the United States," Fisher said.

(Reporting by Alister Bull; Editing by Jonathan Oatis)