MEXICO CITY, March 5 A U.S. Federal Reserve
policymaker who has long criticized its bond-buying stimulus
said on Wednesday the program has lasted too long, and there are
signs it is now distorting financial markets and encouraging
In a speech in Mexico City, Dallas Fed President Richard
Fisher amplified some lingering concerns that the central bank's
policy stimulus is stoking asset-price bubbles that "may result
in tears" for investors acting on bad incentives.
"There are increasing signs quantitative easing has
overstayed its welcome: Market distortions and acting on bad
incentives are becoming more pervasive," he said of the asset
purchases, which are sometimes called QE.
"I fear that we are feeding imbalances similar to those that
played a role in the run-up to the financial crisis," he said in
prepared remarks to the Association of Mexican Banks.
Fisher, a voter on U.S. monetary policy this year, also
praised Mexico's moves to stimulate growth in the wake of the
global recession. As for the United States, he repeated
criticisms that the government has failed to take advantage of
the five years of easy Fed money, missing its opportunity to
restructure debt and to reform entitlements and regulations.
The central bank has kept interest rates near zero since
late 2008 and has bought more than $3 trillion in Treasury and
mortgage-based bonds to lower longer-term borrowing costs, and
stimulate hiring and growth.
The U.S. economy expanded at a decent 2.4 percent rate in
the fourth quarter but has slowed this year thanks in part to
severe winter weather.
"I do think we have had some short-term weather impact but
that can turn around very quickly," Fisher said, adding that
warmer temperatures would boost consumption and industry.
Though the Fed under new Chair Janet Yellen has taken the
first few steps to trim its bond buying, which now runs at
$65-billion per month, worries are growing that all the stimulus
has driven investors to take risks that could destabilize
Fisher, an outspoken policy hawk, pointed to soaring margin
debt and the narrow spreads between corporate and Treasury debt
as areas of concern.
In the stock markets, he said price-to-projected-earnings,
price-to-sales ratios, and market capitalization relative to GDP
are all at "eye-popping levels not seen since the dot-com boom"
of the late 1990s.
"We must monitor these indicators very carefully so as to
ensure that the ghost of 'irrational exuberance' does not haunt
us again," he said, borrowing former Fed Chairman Alan
Greenspan's line warning about the tech-asset bubble.
For now, the Fed is in no rush to raise rates and is only
gradually trimming the bond purchases, which over the past few
years have swelled its balance sheet to more than $4 trillion.
Fisher said that while the Fed has no "clear plan" for
draining some of the $2.5 trillion in reserves that have built
up at banks, he was confident the Fed would find a "practicable"
way to normalize its balance sheet and avoid inflation.
"The real tools that we are focusing on are how we manage
the exit from the current hyper-accommodative monetary policy
and how do we make sure ... that we do it in a way that doesn't
allow the current very large and presently non-inflationary
monetary base ... from becoming inflationary," he said following