Fed's "Operation Twist" has only minor effects: Fisher

CHICAGO Tue Jun 26, 2012 3:08pm EDT

Richard W. Fisher, President and Chief Executive Officer for the Federal Reserve Bank of Dallas, speaks on International Economics at the Council on Foreign Relations in New York, March 3, 2010. REUTERS/Shannon Stapleton

Richard W. Fisher, President and Chief Executive Officer for the Federal Reserve Bank of Dallas, speaks on International Economics at the Council on Foreign Relations in New York, March 3, 2010.

Credit: Reuters/Shannon Stapleton

CHICAGO (Reuters) - The Federal Reserve's recent move to push down borrowing costs by replacing its short-term securities holdings with longer-term ones is doing more harm than good, a top Fed official who opposed the action said on Tuesday.

The Fed last week decided to extend through the end of the year a bond maturity-extension program called Operation Twist, in which the central bank replaces short-term debt it holds with longer-term securities. Operation Twist had been due to end this week.

"My suspicion is Operation Twist is having a very minor effect and I have argued that the benefits do not exceed the costs; the costs exceed the benefits," Dallas Federal Reserve Bank President Richard Fisher told Fox Business Network, according to a transcript provided by Fox. "And that's why I personally didn't support the program. But I was in a minority."

Fisher, an inflation hawk, has been a staunch opponent of further Fed easing. Though he does not have a vote on the Fed's policy-setting panel this year, he participates in the committee's deliberations.

All but one voting member on the panel supported last week's extension of Operation Twist.

The Fed, which has kept interest rates near zero since December 2008 and has signaled it will keep them there until at least late 2014, has bought $2.3 trillion in long-term securities since the Great Recession.

Some economists had expected the Fed to launch a third round of outright bond-buying last week, and about half of Wall Street's top bond dealers expect it to do so in the future.

Fisher said he would oppose such a program.

"I would argue against it unless something comes up that I don't understand," Fisher said, according to the transcript.

"In practical terms, there's a limit to what we can do without distorting the marketplace," he said. "And that's a subject of much debate at the committee."

(Reporting by Ann Saphir; Editing by Jackie Frank)

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