* Fisher has not dissented this year, but has done in past
* Fed officials rarely make predictions of Fed actions
(Adds comments, details)
By Ann Saphir
LOS ANGELES, July 16 The Federal Reserve is
"likely" to start raising interest rates gradually early next
year and should begin shrinking its massive balance sheet in
October to signal its confidence in the recovery, a top Fed
official said on Wednesday.
"Now, I may be more confident that the economy is improving
than some of my colleagues, but it's pretty hard to refute the
data right now," Dallas Fed President Richard Fisher told
reporters after a speech at the University of Southern
California. "And then once we are really sure... as I said, it's
like duck-hunting, you have to shoot ahead of the mallard, you
don't shoot where it is...that's when we talk about rates and
If the jobless rate continues to fall faster than expected
and inflation to rise back to the Fed's 2-percent target, the
Fed could raise rates even sooner, he said. The unemployment
rate registered 6.1 percent in June, and many economists believe
it has room to fall only to about 5.5 percent before unwanted
inflationary pressures could begin to build.
Fisher is a voting member of the Fed's policy-setting panel
this year, and himself acknowledges his views are "at odds" with
those of many of his colleagues. He said he will push his views
hard in upcoming policy-setting meetings, the next of which will
take place in Washington in late July. Fisher, who is 65, faces
mandatory retirement by next spring.
The Fed already plans to stop its bond-buying stimulus in
October, but has said it then expects to wait a "considerable
time" before raising rates in order to avoid short-circuiting
what has been a very slow recovery.
Many Fed officials, wary of any move that could send market
rates higher before the economy is ready, want to continue to
top up the U.S. central bank's $4.3-trillion balance sheet by
reinvesting the proceeds of maturing bonds until or even after
rate hikes begin.
Fisher said he personally believes markets will adjust to
the Fed's signals "gently," and if they don't, the Fed can
adjust its stance.
"We have to be careful that we don't let markets bully the
central bank," he said.
The Fed has kept interest rates near zero since December
2008 and has bought trillions of dollars of bonds to push down
long-term borrowing costs and boost the economy. Fisher has long
opposed the bond-buying, but this year has not dissented from
the majority of his colleagues who support it because they have
gradually been winding the program down.
But given that the Fed is nearer to its goals than many
appreciate, Fisher said, "the notion that 'we can always
tighten' if it turns out that the economy is stronger than we
thought it would be or that we've overshot full employment is
Instead, he urged, the Fed should "dilute the punch" of easy
(Reporting by Ann Saphir; Editing by Chizu Nomiyama)