UPDATE 2-Fed's Fisher repeats call to reduce bond buying

Tue Mar 26, 2013 7:47am EDT

Related Topics

* Says data from U.S. economy much better

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* Remarks follow Bernanke's comments on easy policy

* Describes Cyprus as unique case

* Does not criticise rescue plan as dangerous precedent

By Martin Dokoupil and Stanley Carvalho

ABU DHABI, March 26 (Reuters) - Richard Fisher, President of the Dallas Federal Reserve, repeated on Tuesday his call for the U.S. central bank to slightly reduce its bond purchasing programme.

Fisher, speaking at a financial conference in the United Arab Emirates capital, said that data from the U.S. economy had improved a lot recently and that there had been an incredible revival of the collateralised loan obligation market.

"I have been advocating for tapering of asset purchases. I think we should be adjusting that... We are not going to go like that forever," Fisher said.

"I do not want to go from wild turkey to cold turkey overnight. But I think we might just taper it a little bit and turn it down as the economy gets stronger. And I think we are at the point where we can afford to consider it."

The efficacy of the bond purchases has diminished, Fisher said, adding that he favoured trimming back purchases of mortgage-backed securities as the housing market recovers. He declined to say how much the programme should be reduced.

Fisher, long a vocal critic of the Fed's exceptionally loose monetary policy, does not vote on its policy-setting panel this year. He has been among the minority in emphasizing the risks of continuing to add to the Fed's balance sheet.

He said the root of U.S. economic problem was fiscal policy, not monetary policy, warning that there was a lot of liquidity in the economy that was not being utilised as businesses lacked certainty about the direction of fiscal policy.

"We ... know that monetary policy is necessary but not sufficient to achieve full employment because it's also a function of fiscal policy. And there lies the problem," he said.

Fisher noted that he wasn't the only policymaker arguing for lower bond purchases. Charles Plosser, President of the Philadelphia Fed, has taken a similar position.

Last week, Fed Chairman Ben Bernanke signalled a willingness to begin scaling back the programme if the U.S. economy continues to improve, but downplayed the programme's risks and made clear he did not expect to begin tightening policy soon.

Fisher said on Tuesday that the U.S. economy was beginning to move forward at a 2-3 percent clip though it was not accelerating significantly.

"We are moving towards a growth rate of 3 percent as we progress," he later told reporters.

CYPRUS

He described this week's international rescue plan for Cyprus, which has rattled global markets by including the radical step of penalising big depositors at its banks, as unique, since the island was a depository for "hot money" seeking high returns.

Fisher said the difficulty with the rescue was what it signalled to other depositors around the world. But he did not explicitly criticise the plan as setting a dangerous precedent.

"All central bankers are ... certainly hesitant to either criticise or describe the activities of our colleagues elsewhere in the world. We are struggling in the United States getting it right, and we understand the great difficulty of the ECB (European Central Bank) because it is a new experiment."

He added on Cyprus, "The depositors are nervous, the world is watching. It illustrates the enormous complexity."

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