By Jonathan Spicer
NEW YORK Feb 27 The Federal Reserve risks
"overkill" if it continues buying mortgage bonds at the current
clip because the U.S. housing market is on sounder footing, a
top Fed official said on Wednesday.
In a speech, Federal Reserve Bank of Dallas President
Richard Fisher repeated his preference for the U.S. central bank
to taper its $40 billion in purchases of monthly mortgage-backed
The Fed is also buying $45 billion in Treasury bonds per
month as part of its unprecedented drive to spur investing and
hiring, and to help along the slow and erratic U.S. recovery
from the 2007-09 recession.
Fisher, an outspoken inflation hawk whose views are in the
minority among his fellow 18 Fed policymakers, pointed to a
"reinvigorated housing market" as a source of concern over the
extraordinary measures employed by the central bank, including
its quantitative easing program.
"The fact that the housing-market gears have now begun to
mesh is why I believe we are running the risk of overkill by
continuing our mortgage-backed securities purchase program at
the current pace, and would suggest tapering off those
purchases," Fisher told students and faculty at Columbia
He added, however, that U.S. unemployment remains
"annoyingly high" at 7.9 percent last month, and that
private-sector job-creation has been less enthusiastic than
Chairman Ben Bernanke and most other Fed policymakers are
eager to act given the high jobless rate and the fact that
inflation is below their 2 percent target, and they do not want
to derail a recovery that has faltered in each of the last three
years. A weak global economy, higher U.S. taxes, and possibly
sharp government spending cuts that could kick in starting next
week all pose risks.
Still, the central bank is increasingly worried that the
ultra-easy policies are setting the stage for a run-up in
inflation or balance-sheet losses down the road.
Fisher highlighted a third key concern: the massive bond
buying could distort markets and cause bubbles in hard-to-detect
"Credit is super-abundant and stock market behavior is
conditioned not so much by the fundamental performance of its
underlying companies but by increasing doses of monetary
Ritalin," Fisher said.
U.S. stocks are near record highs. On Wednesday, all three
major indexes rose more than 1 percent, and the S&P 500 posted
its best daily percentage gain since Jan. 2, in part due to
Bernanke's testimony to Congress in which he defended the
Citing the uncertain market backdrop, Fisher said he is not
surprised that businesses have chosen not to hire but to buy
back shares, pay out dividends or to make acquisitions.
Turning to the topic of his home state, the policymaker
suggested that Texas should take advantage of historically low
interest rates to borrow for the next 100 years.
"Might it make sense for Texas to issue ultra-long bonds at
currently prevailing ultra-low rates to finance the state's
longer-term infrastructure needs?" Fisher asked. "I have in mind
a Texas Century Bond. ... If ever there were a window for such
an issuance, it surely would be now."