UPDATE 1-CEOs worry Fed setting 'inflationary fire' -Fisher

Tue Apr 10, 2012 2:31pm EDT

By Ann Saphir

NORMAN, Okla., April 10 (Reuters) - Chiefs of U.S. companies big and small are worried the Federal Reserve's bond-buying programs could lead to uncontrolled inflation, a top Fed official known for his opposition to further monetary stimulus said on Tuesday.

"To a person that I speak to, I am pleaded with, 'please no more liquidity'," Dallas Federal Reserve Bank President Richard Fisher told students at the University of Oklahoma's Price College of Business. There is "real concern that with our expanded balance sheet that we are just a little bit of an ember in what could become an inflationary fire."

Speaking with reporters afterward, Fisher said he did not necessarily share the view of his business contacts on inflation, projecting that it will settle near the Fed's 2 percent target.

Still, he said, he has been surprised by what appears to be a deepening fear.

"I am beginning to hear that there are concerns particularly in the small business community about cost push pressures," Fisher said. "They don't have the pricing power that they would like but they are feeling the squeeze on the cost side."

Fed officials track inflation expectations closely, as they can feed into actual inflation if businesses begin pricing their goods with those expectations in mind.

The Fed has kept short-term interest rates near zero since December 2008 and has bought $2.3 trillion in Treasuries and mortgage-backed securities to push borrowing costs down even further.

But the recovery from the worst downturn since the Great Depression - now well into its third year -- has been slow, and the Fed last month reiterated its plan to keep benchmark rates near zero through late 2014 to help nurse it along.

Most major Wall Street firms expect anemic growth in U.S. jobs and a struggling economic recovery to force the Fed to launch a third round of quantitative easing, or QE3, a Reuters poll found on Monday.

A government report Friday showing U.S. businesses added far fewer jobs in March than expected gave support to that expectation.

Fisher downplayed the report, saying it does not change his outlook on the economy, from which he expects continued growth. "You don't make decisions based on one data point," he said.

Fisher said he talks to business contacts at companies including Wal-Mart, which he did not mention by name but described as a company with more than a million employees headquartered in Arkansas.

Fisher, who is not a voter this year on the Fed's policy-setting panel, has long been opposed to the Fed's zero-rate interest policy, and has said he will not support any further easing.

Fisher said he believes that what the economy needs most is better clarity on the future of taxes and regulation.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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