Fed's Fisher says he's worried about Fed's big balance sheet

GAINESVILLE, Texas Tue Dec 18, 2012 2:40pm EST

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GAINESVILLE, Texas Dec 18 (Reuters) - The Federal Reserve's latest round of bond-buying, expected to swell the U.S. central bank's balance sheet to more than $3 trillion, could ultimately compromise the Fed's independence, Dallas Fed President Richard Fisher said on Tuesday.

"It's compounding the difficulty of exit" from the Fed's current super-easy monetary policy, he told reporters after a speech here. "It might even impair our balance sheet."

Under current low Treasury yields, the Fed books gains on its bond holdings, and remits profits to the Treasury. If yields rise, the Fed may no longer be able to remit profits to the Treasury, he said.

"I worry that if we were to get into that situation -- please stress the word 'if' -- we might have more efforts to politically interfere with our independence," he said. "I'm not willing to tolerate that risk."

The Fed last week said it would buy $45 billion in longer-term Treasuries each month, on top of its monthly purchases of $40 billion in mortgage-backed securities, until it sees a substantial improvement in the outlook for the U.S. labor market.

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