U.S. economy can handle reduction in bond-buys: Fed's Fisher

ORLANDO, Florida Thu Aug 22, 2013 3:11pm EDT

Federal Reserve Bank of Dallas President Richard Fisher speaks about the concept of breaking up 'too big to fail' banks to a breakout group at the Conservative Political Action Conference (CPAC) in National Harbor, Maryland, March 16, 2013. REUTERS/Jonathan Ernst

Federal Reserve Bank of Dallas President Richard Fisher speaks about the concept of breaking up 'too big to fail' banks to a breakout group at the Conservative Political Action Conference (CPAC) in National Harbor, Maryland, March 16, 2013.

Credit: Reuters/Jonathan Ernst

ORLANDO, Florida (Reuters) - The U.S. economy can withstand a reduction in the Federal Reserve's stimulative asset-purchase program, even though the easy-money policies have boosted U.S. manufacturers and other companies, a top central bank official said on Thursday.

"Personally I think the economy is strong enough to begin the process," Dallas Fed President Richard Fisher, one of 19 policymakers at the central bank, said of the $85-billion monthly quantitative easing program, or QE3.

Investors are trying to guess when the Fed will start to wind down QE3 after Chairman Ben Bernanke said in June that it would likely happen later this year. Most observers predict the Fed will act in September, and a survey of dealers published on Thursday reinforced that view.

While U.S. growth is still tepid and the unemployment rate remained high at 7.4 percent last month, that rate is down from 8.2 percent a year earlier and economic data has been encouraging in the last few months. The Fed launched the bond-buying in September aiming to spur investment, hiring and economic growth.

"The key thing is the cumulative effect (of QE3) and understanding the cost of continuing to do this," Fisher told reporters on the sidelines of a manufacturing conference.

"Even if we do start dialing it back, whenever that is, we still will be buying more" bonds, he added. "It's a question of buying less than we did before."

With many expecting the policy change to come at a September 17-18 Fed policy meeting, investors are now wondering by how much the program could be reduced.

Primary dealers surveyed before the Fed's July policy meeting said they expected a $15-billion reduction in September. They expected policymakers to trim Treasury buys by $10 billion and mortgage-bond purchases by $5 billion, according to median responses to a survey conducted by the New York Fed.

Fisher, a policy hawk who has long complained that U.S. politicians have undermined the economic recovery, told the Orlando conference that while manufacturers have benefited from Fed policies, a more robust rebound in that sector requires less fiscal and regulatory restraint from Washington.

"American companies ... have taken advantage of the cheap and abundant money made available by the Fed's very accommodative monetary policy to create lean and muscular balance sheets," he said in a speech before meeting with reporters.

"While there are many risks in the policy that the Fed has been pursuing ... every manufacturer of goods in America has been given a great gift by your central bank," Fisher said.

The Fed has kept interest rates near zero since 2008 and more than tripled its balance sheet to some $3.6 trillion in an unprecedented effort to help the economy. But the recovery has been erratic and growth has remained below 2 percent this year thanks in part to tighter fiscal policies.

While U.S. manufacturing production took a beating in the 2007-2009 recession, it has rebounded in recent years and the latest monthly data show factory activity jumped to a two-year high in July.

"The remaining obstacle to being the absolute best economy for manufacturers and other businesses, bar none," Fisher added, "has been fiscal and regulatory policy that seems incapable of providing job-creating manufacturers and other businesses with tax, spending and regulatory incentives to take advantage of the cheap and abundant fuel the Fed has provided."

(Writing by Jonathan Spicer; Editing by Nick Zieminski)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
Harry079 wrote:
I’m more concerned at this time of what is going on over at the Treasury. The have been operating under the Extra Odinary Measures since May 20th and not nearly a peep about exactly where they are and what assets have been tapped.

How much of the $250 billion have they used to keep us from hitting the Debt Subject to the Limit? What’s the big secret to keeping the debt just $25 million below the legal limit for three months in a row?

Where is the Treasury publishing the numbers to what and how much money they are using under the Extra Ordinary Measures program and where they are getting it?

Have they tapped into the Civil Service & Postal Pension Funds yet?

Aug 24, 2013 2:50pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.