Richard Fisher, president of the Federal Reserve Bank of Dallas, said further bond purchases would do little to aid the U.S. economy while fueling perceptions the central bank is encouraging government spending.
“I believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington,” Fisher said in a speech at the University of St. Andrews in Scotland.
The Fed purchased $2.3 trillion of securities in two rounds intended to lower long-term borrowing costs and spur employment. In September, it started a program to lengthen the maturities of the assets on its balance sheet, known as Operation Twist.
Fisher dissented twice last year against moves to push down long-term borrowing costs and to keep the benchmark U.S. interest rate near zero until at least mid-2013. He voted five times in 2008 in favor of tighter monetary policy. He doesn’t vote on policy this year.
“There is a growing sense that we are unwittingly, or worse, deliberately, monetizing the wayward ways of Congress,” said Fisher, 63. He said investors are concerned the Fed has “already expanded its balance sheet to its stretching point.”
Responding to audience questions, Fisher expressed doubts about Operation Twist, which expires at the end of this month. Under the program, the Fed sold $400 billion of Treasury securities with maturities of three years or less and used the proceeds to buy $400 billion of Treasuries with maturities of six years or more.
Sending a Signal
“It’s time for the market to send us a signal what the price of debt should be,” Fisher said. He said measures including Operation Twist are “distorting the price.”
The policy-setting Federal Open Market Committee said in April it plans to hold the benchmark interest rate near zero through at least late 2014 to spur economic growth and reduce unemployment. Employers in May added the fewest workers in a year, fueling concern the U.S labor recovery is sputtering.
Fed officials at a June 19-20 meeting plan to update their forecasts for growth, unemployment and inflation. Policy makers favoring more stimulus include Boston Fed President Eric Rosengren, who said on May 31 that the central bank should cut joblessness by prolonging Operation Twist.
Fisher has opposed more easing of monetary policy, saying businesses would probably hire more workers after the government charts a path toward reducing the federal budget deficit. In his speech today, Fisher said “trillions of dollars are sitting on the sidelines” that could be used for job creation.
The unemployment rate rose to 8.2 percent in May after the economy added 69,000 jobs, Labor Department figures showed June 1. Economists forecast the economy to add 150,000 jobs, according to the median of a Bloomberg News survey.
The benchmark 10-year Treasury note fell on speculation the U.S. economy won’t slow enough to justify keeping yields at the record lows set last week. The yield on the 10-year Treasury note to 1.56 percent at 9 a.m. in New York from 1.53 percent late yesterday.
Fisher attributed much of the decline in Treasury yields to the European crisis, which has pushed investors to seek the perceived safety of U.S. government debt.
“We are the best-looking horse in the glue factory,” he said. He declined to predict where bond yields might end up.
To contact the reporters on this story: Rodney Jefferson in St. Andrews, Scotland, at firstname.lastname@example.org Aki Ito in San Francisco at email@example.com
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