Fed's Fisher says QE is insufficient on its own to boost jobs

GAINESVILLE, Texas Tue Dec 18, 2012 1:40pm EST

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GAINESVILLE, Texas Dec 18 (Reuters) - The U.S. Federal Reserve's bond-buying programs on their own are not enough to help boost jobs, because there is too much uncertainty holding businesses back from hiring, a top Fed official said on Tuesday.

"Quantitative easing is a necessary but insufficient tool to spark job creation," Dallas Fed President Richard Fisher said at the Gainesville Area Chamber of Commerce. "Employers will not deploy the cheap and abundant capital on hand toward job creation while there is so much uncertainty surrounding final demand for the goods and services they sell."

Businesses are also holding back because of uncertainty over the so-called fiscal cliff, he said, because they do not know what their taxes will be or how government spending patterns will affect them.

The Fed last Wednesday said it would keep interest rates near zero until unemployment -- now at 7.7 percent -- fell at least to 6.5 percent, as long as inflation does not rise above 2.5 percent. It was the first time the Fed had picked a specific marker for unemployment to guide policy.

It also 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.

The Fed will fund the new Treasury purchases with an expansion of its $2.9 trillion balance sheet. Under the expiring "Operation Twist" program, the Fed bought an identical amount, but paid for them with proceeds from sales and redemptions of short-term debt.

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