Fed should declare victory on housing, end MBS purchases: Fisher

HOUSTON Thu May 16, 2013 10:33am EDT

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HOUSTON (Reuters) - The U.S. Federal Reserve should withdraw its targeted support of the housing sector now that it is on its way to recovery, a top Fed official said on Thursday.

"I think we can rightly declare victory on the housing front and reef in (or dial back) our purchases, with the aim of eliminating them entirely as the year wears on," Dallas Fed President Richard Fisher said in remarks prepared for delivery to the National Association for Business Economics.

"I believe the efficacy of continued purchases is questionable."

The U.S. central bank is buying $85 billion of Treasuries and mortgage-backed securities each month in a bid to boost growth and spur hiring by pushing down long-term borrowing costs.

Fisher is among the minority at the Fed who have long opposed the central bank's super-easy monetary policies. His remarks on Thursday amounted to a renewed broadside against the Fed's bond-buying program and the views of "the theoreticians that lead the Fed."

"In my view, the housing market is on a self-sustaining path and does not need the same impetus we have been giving it," he said.

Housing added to growth last year for the first time since 2005, and single-family home prices recently rose the most on an annual basis since mid-2006.

While bolstering the sector was critical early on in the economic recovery, Fisher said, he now worries that the Fed's purchases of housing-backed bonds could distort the market and could make it more difficult for the Fed to pare its balance sheet when the time comes.

Fisher also said he believes economists are underestimating the strength of the recovery, declaring a "better than even" chance that U.S. gross domestic product will grow more quickly this year than the 2.4 percent economists currently expect.

Despite the Fed's "hyper-accommodative" monetary policy, inflation will end 2013 between 1.5 percent and the Fed's target of 2 percent, he said.

"The issue at present is not a meaningful threat to price stability in the immediate future," he said. "The issue is job creation."

Unemployment has fallen since the depths of the Great Recession, but at 7.5 percent in April it is still far higher than most economists believe is healthy.

But the Fed is powerless to return the U.S. economy to full employment, Fisher said, unless fiscal authorities provide a clear roadmap on the future of tax and spending policy.

"Until then, I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for a massive shipboard fire of eventual inflation," said Fisher, who does not vote this year on the Fed's policy-setting panel.

Fed policymakers next meet in mid-June to debate monetary policy.

(Writing by Ann Saphir; Editing by Chizu Nomiyama)

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