CHICAGO The Federal Reserve should start to trim its massive bond-buying program next week, and spell out a clear path for phasing it out altogether, a top Fed official said on Monday.
"It is time to taper," Dallas Federal Reserve Bank President Richard Fisher said in remarks prepared for delivery to the DTN/The Progressive Farmer Ag Summit in Chicago.
The Fed next meets to decide policy Dec 17-18 and most economists expect it to defer any change until next year.
Saying that the cost of the Fed's $85-billion-a-month asset-purchase program "far exceeds" its benefits, Fisher urged reducing it "at the earliest opportunity," and to articulate a clear, well-defined path for ending it by a certain date.
Doing so, he said, could make the Fed's change of policy course easier for markets to digest. At least three of his Fed colleagues have signed on to the same approach to ending the program, known as QE3 because it is the third round of quantitative easing.
When the Fed last signaled it was gearing up to end its bond-buying program, in May and June, investors pushed up market rates faster and farther than the Fed had expected. The rise in rates threatened to slow an already fragile recovery, and was one factor in the Fed's decision not to pull back on bond-buying at its September meeting.
"We should make clear that, barring some serious economic crisis, we will stay the course of reduction," Fisher said.
Fisher, who will rotate into a voting spot on the Fed's policy-setting panel next year, has opposed the Fed's bond-buying program from its start last September, arguing that without clear fiscal policy, no amount of easy money will be enough to get businesses hiring again.
On Monday he repeated that view, warning as well that continuing to add liquidity to the U.S. financial system could set the stage for "financial shenanigans" as investors buy and sell based on the availability of low rates rather than on fundamentals.
Fisher's critical view of the Fed's quantitative easing program puts him in the minority among his colleagues, most of whom credit easy money with helping to bring down unemployment to 7 percent last month, from near 8 percent when the program started.
With inflation running well below the Fed's 2-percent target, several other regional Fed bank chiefs have made the case for the Fed to continue with super-easy monetary policy to help bring inflation back up.
On Monday Fisher took strong exception to that idea.
"Especially given that we have a surfeit of excess liquidity sloshing about in the system, the idea of ramping up inflation expectations from their current tame levels strikes me as short-sighted and even reckless," he said.
(Writing by Ann Saphir; Editing by Chizu Nomiyama)