June 9, 2009 / 4:20 PM / 10 years ago

UPDATE 1-Fed's Fisher says US economy making progress

* Rising interest rates tied to huge Treasury issuance

* Commits to Fed not “monetizing” U.S. deficits

* TARP repayments by several banks termed a healthy sign (Adds details)

By Ros Krasny

CHICAGO, June 9 (Reuters) - The U.S. economy is in better shape now than several months ago following aggressive actions by the Federal Reserve to backstop credit markets, Dallas Fed President Richard Fisher said on Tuesday.

“We are out of the end zone, still marching down the field,” said Fisher, using a common sports metaphor signifying progress. “We have a ways to go ... we’re less at peril presently than we were before,” Fisher said in an interview with Fox Business Network.

Even so, the employment situation, while getting “less bad,” is “still on the negative side,” he said.

Fisher is not a voting member of the Fed’s policy-setting Federal Open Market Committee in 2009.

The United States is not seeing “significant inflation pressure, and there’s still a risk that the price pressure is on the downside,” he said.

Fisher said that rising U.S. interest rates in recent weeks were not due to a lack of confidence in the Fed to fight the forces of inflation that could be unleashed by a long spell of highly accommodative monetary policy.

“I think it has to do largely with a very simple phenomenon: supply and demand. There’s an enormous need for the Treasury to borrow,” Fisher said.

U.S. 10-year Treasury note yields are currently at 3.84 percent, up from about 3.10 percent in mid-May. Some Fed watchers fear that higher interest rates could choke off the U.S. economic recovery.

Although the U.S. and global economy has “an enormous amount of excess capacity” that is tamping down inflation for now, Fisher said it will be up to the Fed to prevent inflation over the longer term.

“We are going to have to be careful as an institution ... to make sure we pull things back in, at the right time.”

The Fed cannot be seen as monetizing the huge U.S. budget deficits expected over the next few years, he said.

“If we monetize these deficits, then you will have even more rapid rise in interest rates in the Treasury sector and credit markets. So we’ll do our job,” Fisher said.

Fisher said that the ability of several banks to repay billions of dollars provided under the Troubled Asset Relief Program, or TARP, was “a healthy sign.”

The U.S. Treasury said on Tuesday that 10 major banks have been approved to repay taxpayer funds.

“Most of the firms that I know that have taken the TARP money of course are eager to get it back. It was a bridge,” Fisher said. (Editing by Dan Grebler)

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